UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 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 ☑☑ 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 ☑ No ☑ No ☐

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

Large Accelerated Filer ☐	Accelerated Filer ☑	Non-Accelerated Filer ☐	Smaller Reporting Company ☐
Emerging Growth Company ☐

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

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

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

~~51,329,431~~51,347,056 common shares ($1.00 par value per share) outstanding as of ~~April 30,~~October 31, 2019

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

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	9
		Note 2 – ~~Restricted Cash~~	11
		~~Note 3 – Investment Securities~~Significant Events	12
		Note 3 – Restricted Cash	15
		Note 4 – ~~Loans~~Investment Securities	17
		Note 5 – ~~Allowance for Loan and Lease Losses~~Loans	4122
		Note 6 – ~~Foreclosed Real Estate~~	47
		~~Note 7 – Derivatives~~	48
		~~Note 8 – Accrued Interest Receivable~~Allowance for Loan and ~~Other Assets~~	49
		~~Note 9 – Deposits and Related Interest~~Lease Losses	50
		Note 107 – ~~Borrowings and Related Interest~~	52
		~~Note 11 – Offsetting of Financial Assets and Liabilities~~	54
		~~Note 12 – Income Taxes~~	56
		~~Note 13 – Regulatory Capital Requirements~~	57
		~~Note 14 – Stockholders’ Equity~~	59
		~~Note 15 – Accumulated Other Comprehensive Income~~Foreclosed Real Estate	60
		Note 168 – ~~Earnings per Common Share~~Derivatives	61
		Note 9 – Accrued Interest Receivable and Other Assets	62
		Note 1710 – ~~Guarantees~~Deposits and Related Interest	6263
		Note 1811 – ~~Commitments~~Borrowings and ~~Contingencies~~	64
		~~Note 19 – Operating Leases~~Related Interest	65
		Note 2012 – ~~Fair Value~~Offsetting of Financial ~~Instruments~~Assets and Liabilities	6867
		Note 2113 – ~~Banking and Financial Service Revenues~~Income Taxes	69
		Note 14 – Regulatory Capital Requirements	70
		Note 15 – Stockholders’ Equity	72
		Note 16 – Accumulated Other Comprehensive Income	74
		Note 17 – Earnings per Common Share	77
		Note 18 – Guarantees	78
		Note 19 – Commitments and Contingencies	79
		Note 20 – Operating Leases	80
		Note 21 – Fair Value of Financial Instruments	83
		Note 22 – Banking and Financial Service Revenues	89
		Note 23 – Business Segments	7691

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		7894
		Critical Accounting Policies and Estimates	79
		~~Overview of Financial Performance~~	8094
		Selected Financial Data	8095
		Financial Highlights of the ~~First~~Third Quarter of 2019	8297
		Analysis of Results of Operations	82101
		Analysis of Financial Condition	94114
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		~~119~~138
Item 4.	Controls and Procedures		~~123~~142
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		~~124~~143
Item 1A.	Risk Factors		~~124~~143
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		~~124~~144
Item 3.	Default upon Senior Securities		~~124~~144
Item 4.	Mine Safety Disclosures		~~124~~144
Item 5.	Other Information		~~124~~144
Item 6.	Exhibits		~~125~~145
Signatures			~~126~~146

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;

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

· amendments to the fiscal plan approved by the Financial Oversight and Management Board for 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 de Puerto Rico (“SBPR”) and certain branch assets and liabilities of The Bank of Nova Scotia (“BNS”) in Puerto Rico and its U.S. Virgin Islands operations (the “Scotiabank Transaction”); and

·difficulties in integrating the operations expected to be acquired in the Scotiabank Transaction.

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 ~~MARCH 31,~~SEPTEMBER 30, 2019 AND DECEMBER 31, 2018

		March 31,		December 31,			September 30,		December 31,
		2019		2018			2019		2018
		(In thousands)					(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks		$	498,328	$	442,103		$	953,802	$	442,103
Money market investments			7,665		4,930			8,035		4,930
Total cash and cash equivalents			505,993		447,033			961,837		447,033
Restricted cash			3,030		3,030			1,050		3,030
Investments:
Trading securities, at fair value, with amortized cost of $647 (December 31, 2018 - $647)			381		360
Investment securities available-for-sale, at fair value, with amortized cost of $1,248,749 (December 31, 2018 - $854,511)			1,239,469		841,857
Trading securities, at fair value, with amortized cost of $182 (December 31, 2018 - $647)								41		360
Investment securities available-for-sale, at fair value, with amortized cost of $520,960 (December 31, 2018 - $854,511)								519,095		841,857
Investment securities held-to-maturity, at amortized cost, with fair value of $410,353 at December 31, 2018			-		424,740			-		424,740
Federal Home Loan Bank (FHLB) stock, at cost			12,800		12,644			10,525		12,644
Other investments			3		3			57		3
Total investments			1,252,653		1,279,604			529,718		1,279,604
Loans:
Loans held-for-sale, at lower of cost or fair value			7,682		10,368			35,546		10,368
Loans held for investment, net of allowance for loan losses of $162,488 (December 31, 2018 - $164,231)			4,393,719		4,421,226
Loans held for investment, net of allowance for loan losses of $154,343 (December 31, 2018 - $164,231)								4,371,644		4,421,226
Total loans			4,401,401		4,431,594			4,407,190		4,431,594
Other assets:
Foreclosed real estate			30,865		33,768			26,952		33,768
Accrued interest receivable			33,152		34,254			30,470		34,254
Deferred tax asset, net			112,744		113,763			112,602		113,763
Premises and equipment, net			69,017		68,892			69,754		68,892
Customers' liability on acceptances			25,791		16,937			21,796		16,937
Servicing assets			10,623		10,716			10,125		10,716
Derivative assets			110		347			13		347
Goodwill			86,069		86,069			86,069		86,069
Operating lease right-of-use assets			20,860		-			19,318		-
Other assets			50,883		57,345			56,611		57,345
Total assets		$	6,603,191	$	6,583,352		$	6,333,505	$	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 ~~MARCH 31,~~SEPTEMBER 30, 2019 AND DECEMBER 31, 2018 (CONTINUED)

		March 31,		December 31,			September 30,		December 31,
		2019		2018			2019		2018
		(In thousands)					(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits		$	2,218,186	$	2,191,802		$	2,228,256	$	2,191,802
Savings accounts			1,252,157		1,212,259			1,225,654		1,212,259
Time deposits			1,426,758		1,504,054			1,424,148		1,504,054
Total deposits			4,897,101		4,908,115			4,878,058		4,908,115
Borrowings:
Securities sold under agreements to repurchase			431,566		455,508			190,261		455,508
Advances from FHLB			81,111		77,620			79,052		77,620
Subordinated capital notes			36,083		36,083			36,083		36,083
Other borrowings			286		1,214			551		1,214
Total borrowings			549,046		570,425			305,947		570,425
Other liabilities:
Derivative liabilities			439		333			1,159		333
Acceptances executed and outstanding			25,791		16,937			21,796		16,937
Operating lease liabilities			22,618		-			21,081		-
Accrued expenses and other liabilities			87,004		87,665			56,388		87,665
Total liabilities			5,581,999		5,583,475			5,284,429		5,583,475
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, 2018 - 1,340,000 shares; 1,380,000 shares; and 960,000 shares) $25 liquidation value			92,000		92,000			92,000		92,000
Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 51,328,431 shares outstanding (December 31, 2018 - 59,885,234;
Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 51,347,056 shares outstanding (December 31, 2018 - $59,885,234;
51,293,924)			59,885		59,885			59,885		59,885
Additional paid-in capital			619,828		619,381			620,948		619,381
Legal surplus			92,621		90,167			95,783		90,167
Retained earnings			268,101		253,040			285,854		253,040
Treasury stock, at cost, 8,556,803 shares (December 31, 2018 - 8,591,310 shares)			(103,196)		(103,633)
Accumulated other comprehensive loss, net of tax of $1,562 (December 31, 2018 - $1,677)			(8,047)		(10,963)
Treasury stock, at cost, 8,538,178 shares (December 31, 2018 - 8,591,310 shares)								(102,936)		(103,633)
Accumulated other comprehensive loss, net of tax of $552 (December 31, 2018 - $1,677)								(2,458)		(10,963)
Total stockholders’ equity			1,021,192		999,877			1,049,076		999,877
Total liabilities and stockholders’ equity		$	6,603,191	$	6,583,352		$	6,333,505	$	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

UNADUTIED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Quarter Ended March 31,				Quarter Ended September 30,				Nine-Month Period Ended September 30,
	2019		2018		2019		2018		2019		2018
	(In thousands, except per share data)				(In thousands, except per share data)
Interest income:
Loans	$	84,119	$	74,612	$	85,772	$	84,016	$	254,971	$	237,057
Mortgage-backed securities		7,925		7,051		3,553		8,173		17,465		23,258
Investment securities and other		2,666		1,507		4,330		1,948		10,184		4,998
Total interest income		94,710		83,170		93,655		94,137		282,620		265,313
Interest expense:
Deposits		9,049		7,298		10,554		8,605		29,594		23,554
Securities sold under agreements to repurchase		2,785		1,076		1,342		2,242		6,234		5,159
Advances from FHLB and other borrowings		563		374		550		517		1,671		1,339
Subordinated capital notes		524		428		499		496		1,537		1,402
Total interest expense		12,921		9,176		12,945		11,860		39,036		31,454
Net interest income		81,789		73,994		80,710		82,277		243,584		233,859
Provision for loan losses, net		12,249		15,460		43,770		14,601		73,724		44,808
Net interest income after provision for loan and lease losses		69,540		58,534		36,940		67,676		169,860		189,051
Non-interest income:
Banking service revenue		10,465		10,463		10,813		10,797		32,054		32,404
Wealth management revenue		5,882		6,019		6,611		6,407		19,162		18,688
Mortgage banking activities		1,206		1,757		1,118		1,242		2,953		3,987
Total banking and financial service revenues		17,553		18,239		18,542		18,446		54,169		55,079

Sale of securities						3,498		-		8,274		-
Early extinguishment of debt						-		-		(7)		-
Other non-interest income		103		275		138		174		346		758
Total non-interest income, net		17,656		18,514		22,178		18,620		62,782		55,837

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 NINE-MONTH PERIODS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2019 AND 2018 (CONTINUED)

	Quarter Ended March 31,				Quarter Ended September 30,				Nine-Month Period Ended September 30,
	2019		2018		2019		2018		2019		2018
	(In thousands, except per share data)				(In thousands, except per share data)
Non-interest expense:
Compensation and employee benefits		20,341		20,608		20,500		18,495		60,716		57,202
Occupancy, equipment and infrastructure costs		7,746		7,768		7,307		8,388		22,564		25,322
Electronic banking charges		5,065		4,966		5,505		5,586		15,698		15,968
Professional and service fees						3,662		3,077		10,297		8,917
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses		3,366		3,645		2,889		3,946		8,839		9,880
Professional and service fees		3,208		2,694
Information technology expenses						2,247		2,056		6,953		6,064
Taxes, other than payroll and income taxes		2,154		2,260		2,235		2,175		6,530		6,820
Information technology expenses		2,507		2,009
Insurance		1,146		1,478
Advertising, business promotion, and strategic initiatives		1,211		1,347		1,333		1,329		3,859		3,700
Loan servicing and clearing expenses		1,209		1,161		1,194		1,251		3,562		3,639
Merger and restructuring charges						1,556		-		2,556		-
Communication		741		885		956		927		2,556		2,627
Printing, postage, stationary and supplies		578		644		672		499		1,885		1,748
Insurance						(366)		1,620		2,057		4,580
Director and investor relations		230		240		374		223		934		800
Other		2,650		2,416		663		1,369		5,325		8,095
Total non-interest expense		52,152		52,121		50,727		50,941		154,331		155,362
Income before income taxes		35,044		24,927		8,391		35,355		78,311		89,526
Income tax expense		11,574		8,010		1,008		12,255		23,479		29,860
Net income		23,470		16,917		7,383		23,100		54,832		59,666
Less: dividends on preferred stock		(1,628)		(3,465)		(1,628)		(3,466)		(4,884)		(10,396)
Income available to common shareholders	$	21,842	$	13,452	$	5,755	$	19,634	$	49,948	$	49,270
Earnings per common share:
Basic	$	0.43	$	0.31	$	0.11	$	0.45	$	0.97	$	1.12
Diluted	$	0.42	$	0.30	$	0.11	$	0.42	$	0.97	$	1.07
Average common shares outstanding and equivalents		51,626		51,121		51,772		51,464		51,695		51,344
Cash dividends per share of common stock	$	0.07	$	0.06	$	0.07	$	0.06	$	0.21	$	0.18

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 NINE-MONTH PERIODS ENDED ~~MARCH 31,~~SEPTEMBER 30, 2019 AND 2018


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

Net income	$	23,470	$	16,917	$	7,383	$	23,100	$	54,832	$	59,666
Other comprehensive income (loss) before tax:
Unrealized gain (loss) on securities available-for-sale		3,374		(11,326)		5,111		(6,375)		19,063		(21,340)
Realized gain on sale of securities available-for-sale						(3,498)		-		(8,274)		-
Unrealized (loss) gain on cash flow hedges		(343)		656		(188)		223		(1,160)		1,153
Other comprehensive gain (loss) before taxes		3,031		(10,670)
Other comprehensive income (loss) before taxes						1,425		(6,152)		9,629		(20,187)
Income tax effect		(115)		1,434		(197)		619		(1,124)		2,341
Other comprehensive income (loss) after taxes		2,916		(9,236)		1,228		(5,533)		8,505		(17,846)
Comprehensive income	$	26,386	$	7,681	$	8,611	$	17,567	$	63,337	$	41,820

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

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

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

Quarter Ended March 31,

2019

2018

(In thousands)
Preferred stock:

Balance at beginning of period
$
92,000

$
176,000
       Balance at end of period

92,000

176,000
Common stock:

Balance at beginning of period

59,885

52,626
       Balance at end of period

59,885

52,626
Additional paid-in capital:

Balance at beginning of period

619,381

541,600
Stock-based compensation expense

447

291
Stock-based compensation excess tax benefit recognized in income

-

(127)
Lapsed restricted stock units

-

(360)
       Balance at end of period

619,828

541,404
Legal surplus:

Balance at beginning of period

90,167

81,454
Transfer from retained earnings

2,454

1,684
       Balance at end of period

92,621

83,138
Retained earnings:

Balance at beginning of period

253,040

200,878
Lease standard initial adoption

(736)

-
Net income

23,470

16,917
Cash dividends declared on common stock

(3,591)

(2,638)
Cash dividends declared on preferred stock

(1,628)

(3,465)
Transfer to legal surplus

(2,454)

(1,684)
       Balance at end of period

268,101

210,008
Treasury stock:

Balance at beginning of period

(103,633)

(104,502)
Lapsed restricted stock units and options

437

360
       Balance at end of period

(103,196)

(104,142)
Accumulated other comprehensive loss, net of tax:

Balance at beginning of period

(10,963)

(2,949)
Other comprehensive (loss), net of tax:

2,916

(9,236)
       Balance at end of period

(8,047)

(12,185)
Total stockholders’ equity
$
1,021,192

$
946,849

See notes to unaudited consolidated financial statements

Quarter Ended March 31,

2019

2018

(In thousands)
Cash flows from operating activities:

Net income
$
23,470

$
16,917
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred loan origination fees and fair value premiums on acquired loans

809

1,118
Amortization of investment securities premiums, net of accretion of discounts

1,113

1,614
Amortization of core deposit and customer relationship intangibles

292

330
Net change in operating leases

10

-
Depreciation and amortization of premises and equipment

2,095

2,277
Deferred income tax expense, net

1,344

586
Provision for loan losses, net

12,249

15,460
Stock-based compensation

447

291
Stock-based compensation excess tax benefit recognized in income

-

(127)
(Gain) loss on:

   Sale of loans

(167)

(87)
   Foreclosed real estate and other repossessed assets

1,137

1,284
   Sale of other repossessed assets

39

217
Originations of loans held-for-sale

(18,282)

(23,292)
Proceeds from sale of loans held-for-sale

5,923

5,945
Net (increase) decrease in:

   Trading securities

(21)

(102)
   Accrued interest receivable

1,102

14,828
   Servicing assets

93

(712)
   Other assets

6,703

10,448
Net (decrease) in:

   Accrued interest on deposits and borrowings

(991)

(359)
   Accrued expenses and other liabilities

(16,687)

(11,235)
Net cash provided by operating activities

20,678

35,401

See notes to unaudited consolidated financial statements


	Quarter Ended September 30,				Nine-Month Period Ended September 30,
	2019		2018		2019		2018
	(In thousands)
Preferred stock:
Balance at beginning of period	$	92,000	$	176,000	$	92,000	$	176,000
Balance at end of period		92,000		176,000		92,000		176,000
Common stock:
Balance at beginning of period		59,885		52,626		59,885		52,626
Balance at end of period		59,885		52,626		59,885		52,626
Additional paid-in capital:
Balance at beginning of period		620,368		541,734		619,381		541,600
Stock-based compensation expense		580		344		1,567		978
Stock-based compensation excess tax benefit recognized in income		-		-		-		(140)
Lapsed restricted stock units		-		-		-		(360)
Balance at end of period		620,948		542,078		620,948		542,078
Legal surplus:
Balance at beginning of period		95,019		85,249		90,167		81,454
Transfer from retained earnings		764		2,314		5,616		6,109
Balance at end of period		95,783		87,563		95,783		87,563
Retained earnings:
Balance at beginning of period		284,459		221,441		253,040		200,878
Lease standard initial adoption		-		-		(736)		-
Net income		7,383		23,100		54,832		59,666
Cash dividends declared on common stock		(3,596)		(2,642)		(10,782)		(7,919)
Cash dividends declared on preferred stock		(1,628)		(3,465)		(4,884)		(10,396)
Transfer to legal surplus		(764)		(2,314)		(5,616)		(6,109)
Balance at end of period		285,854		236,120		285,854		236,120
Treasury stock:
Balance at beginning of period		(103,171)		(103,969)		(103,633)		(104,502)
Lapsed restricted stock units and options		235		263		697		796
Balance at end of period		(102,936)		(103,706)		(102,936)		(103,706)
Accumulated other comprehensive loss, net of tax:
Balance at beginning of period		(3,686)		(15,262)		(10,963)		(2,949)
Other comprehensive income (loss), net of tax:		1,228		(5,533)		8,505		(17,846)
Balance at end of period		(2,458)		(20,795)		(2,458)		(20,795)
Total stockholders’ equity	$	1,049,076	$	969,886	$	1,049,076	$	969,886

See notes to unaudited consolidated financial statements

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

Quarter Ended March 31,

2019

2018

(In thousands)
Cash flows from investing activities:

Purchases of:

   Investment securities available-for-sale

(207)

(173,162)
   FHLB stock

(1,101)

(35,775)
Maturities and redemptions of:

   Investment securities available-for-sale

44,758

23,408
   Investment securities held-to-maturity

-

19,844
   FHLB stock

945

38,271
Proceeds from sales of:

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

11,948

(619)
Origination and purchase of loans, excluding loans held-for-sale

(258,082)

(286,129)
Principal repayment of loans

254,992

197,622
Additions to premises and equipment

(2,220)

(1,580)
Net cash provided by (used in) investing activities
$
51,033

$
(218,120)


	Nine-Month Period Ended September 30,
	2019		2018
	(In thousands)
Cash flows from operating activities:
Net income	$	54,832	$	59,666
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		3,250		3,433
Amortization of investment securities premiums, net of accretion of discounts		3,905		4,426
Amortization of core deposit and customer relationship intangibles		877		989
Net change in operating leases		(95)		-
Depreciation and amortization of premises and equipment		6,265		6,642
Deferred income tax expense, net		476		6,827
Provision for loan losses, net		73,724		44,808
Stock-based compensation		1,567		978
Stock-based compensation excess tax benefit recognized in income		-		(140)
(Gain) loss on:
Sale of securities		(8,274)		-
Sale of loans		(380)		(275)
Derivatives		-		1
Early extinguishment of repurchase agreements		7		-
Foreclosed real estate and other repossessed assets		2,666		2,828
Sale of other assets		(80)		(107)
Originations of loans held-for-sale		(59,879)		(72,512)
Proceeds from sale of loans held-for-sale		15,208		21,593
Net (increase) decrease in:
Trading securities		319		(214)
Other investments		(54)		-
Accrued interest receivable		3,784		16,517
Servicing assets		591		(1,045)
Other assets		463		2,405
Net (decrease) increase in:
Accrued interest on deposits and borrowings		(1,875)		643
Accrued expenses and other liabilities		(56,288)		(23,836)
Net cash provided by operating activities		41,009		73,627

See notes to unaudited consolidated financial statements

Cash flows from financing activities:

Net increase (decrease) in:

   Deposits

12,850

40,198
   Securities sold under agreements to repurchase

(23,766)

81,000
   FHLB advances, federal funds purchased, and other borrowings

2,547

(55,221)
Restricted units lapsed

437

-
Dividends paid on preferred stock

(1,229)

(3,465)
Dividends paid on common stock

(3,590)

(2,638)
Net cash (used in) provided by financing activities
$
(12,751)

$
59,874
Net change in cash, cash equivalents and restricted cash

58,960

(122,845)
Cash, cash equivalents and restricted cash at beginning of period

450,063

488,233
Cash, cash equivalents and restricted cash at end of period
$
509,023

$
365,388
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:

Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:

   Cash and due from banks
$
498,328

$
354,930
   Money market investments

7,665

7,428
   Restricted cash

3,030

3,030
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
$
509,023

$
365,388

Interest paid
$
13,513

$
9,103
Operating lease liabilities paid
$
1,519

$
-
Mortgage loans securitized into mortgage-backed securities
$
15,163

$
17,954
Transfer from held-to-maturity securities to available-for-sale securities
$
424,740

$
-
Transfer from loans to foreclosed real estate and other repossessed assets
$
10,995

$
11,179
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio
$
49

$
1,247
Financed sales of foreclosed real estate
$
186

$
369
Loans booked under the GNMA buy-back option
$
12,942

$
12,515
Initial recognition of operating lease right-of-use assets
$
21,930

$
-
Initial recognition of operating lease liabilities
$
23,689

$
-
See notes to unaudited consolidated financial statements

	Nine-Month Period Ended September 30,
	2019		2018
	(In thousands)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale		(1,117)		(271,062)
FHLB stock		(1,167)		(113,506)
Maturities and redemptions of:
Investment securities available-for-sale		129,027		89,753
Investment securities held-to-maturity		-		58,477
FHLB stock		3,286		115,040
Proceeds from sales of:
Investment securities available-for-sale		680,466		14,746
Foreclosed real estate and other repossessed assets, including write-offs		37,115		38,816
Loans held-for-investment		14,668		-
Fully charged-off loans		2,382		-
Premises and equipment		2,113		1,670
Origination and purchase of loans, excluding loans held-for-sale		(834,486)		(1,015,960)
Principal repayment of loans		722,367		632,333
Additions to premises and equipment		(9,160)		(8,107)
Net cash provided by (used in) investing activities	$	745,494	$	(457,800)

Cash flows from financing activities:
Net increase (decrease) in:
Deposits		5,242		301,195
Securities sold under agreements to repurchase		(264,730)		185,308
FHLB advances, federal funds purchased, and other borrowings		775		(25,904)
Restricted units lapsed		697		436
Dividends paid on preferred stock		(4,881)		(10,396)
Dividends paid on common stock		(10,782)		(7,919)
Net cash (used in) provided by financing activities	$	(273,679)	$	442,720
Net change in cash, cash equivalents and restricted cash		512,824		58,547
Cash, cash equivalents and restricted cash at beginning of period		450,063		488,233
Cash, cash equivalents and restricted cash at end of period	$	962,887	$	546,780
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Balance Sheets:
Cash and due from banks	$	953,802	$	537,945
Money market investments		8,035		5,805
Restricted cash		1,050		3,030
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	962,887	$	546,780
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:
Interest paid	$	39,710	$	29,523
Income taxes paid	$	36,924	$	13,446
Operating lease liabilities paid	$	5,174	$	-
Mortgage loans securitized into mortgage-backed securities	$	45,716	$	59,050
Transfer from held-to-maturity securities to available-for-sale securities	$	424,740	$	-
Transfer from loans to foreclosed real estate and other repossessed assets	$	34,532	$	36,848
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio	$	25,933	$	5,795
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio	$	49	$	1,247
Financed sales of foreclosed real estate	$	1,016	$	912
Loans booked under the GNMA buy-back option	$	11,403	$	13,325
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

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

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

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, which modifies disclosure requirements related to fair value measurement. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

December 15, 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 while delaying adoption of 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. The effects of this standard on our consolidated statement of financial position, results of operations or cash flows are not expected to be material.

Measurement of Credit Losses on Financial ~~Instruments.~~Instruments. In June 2016, the FASB issued ASU No. 2016-13 ~~which includes an impairment model (known~~for the recognition of credit losses on financial instruments. The guidance introduces a new credit reserving methodology known as the ~~current expected~~Current Expected Credit Loss (“CECL”) methodology, which differs significantly from the incurred loss approach used today and will alter the estimation process, inputs and assumptions used in estimating the allowance for 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~~(“ACL”). The CECL methodology requires measurement of expected credit ~~losses.~~losses for the estimated life of the financial instrument, not only based on historical experience and current conditions, but also by including reasonable and supportable forecasts incorporating forward-looking information. At the date of adoption, the change in reserves will be recorded in retained earnings as a cumulative-effect adjustment under the modified retrospective method. CECL eliminates the existing guidance for purchase credit-impaired loans, but requires an allowance for purchased financial assets with more than insignificant deterioration since origination. In addition, it modifies the other-than-temporary impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in credit. 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~~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 have 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 and validated in accordance with our governance policies, 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, ~~in preparation for performing a full parallel run~~. Oriental’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact Oriental’s consolidated financial statements, in particular the level of the reserve for credit losses. Oriental is continuing to evaluate the ~~extent~~impact the new guidance will have on our financial position, results of operations and regulatory risk-based capital. Our current planned approach for estimating lifetime credit losses for our loan portfolio includes the following key components:

·An initial forecast period of one year for all portfolio segments based on historical loss experience, or economic forecast in case of limited historical loss experience;

·An economic forecast period of two years based on the relation of losses with key economic variables for each portfolio segment;

·Segmentation of loans into pools that share common risk characteristics;

·Reversion to the mean period using straight-line method;

·Used the discounted cash flow (DCF) method to measure credit impairment on most of our loan portfolios and estimate lifetime credit losses using the conceptual components described above; and

·A most likely macroeconomic scenario in estimating expected credit losses.

As part of our evaluation of the ~~potential~~estimated impacts of CECL, we have run simulations based on our portfolio composition and current expectations of future economic conditions. The results of those preliminary simulations indicate that our total reserves for credit losses related to our originated book, which accounts for 84 % of total gross loans, could have a net increase between 16 % and 23 % as compared to the incurred loss model applied as of balance sheet date, mostly driven by the retail loan portfolios. At adoption, we expect to have a cumulative-effect adjustment to retained earnings for this change in the ACL, which would impact our capital. Oriental expects to continue to be well capitalized under the Basel III regulatory framework after the adoption of this standard. The Company will avail itself of the option to phase-in over a period of three years the day one effects on regulatory capital from the adoption of CECL. For the acquired book, which represents 16% of total gross loans, we expect its allowance will be enough to cover CECL implementation. Any adjustment will be made through the allowance and ~~expects that~~loan balances with no impact in capital. The ultimate effect of CECL on our ACL will depend on the size and composition of our portfolio, ~~composition~~the portfolio’s credit quality and economic conditions at the time of adoption, as well as any refinements to our models, methodology and other key assumptions. We are continuing our cross-functional implementation efforts and have substantially completed development of our CECL models. Model validation, user acceptance testing, and parallel runs will ~~be a factor.~~continue through the remainder of 2019. In addition, we continue to develop the business processes, policies and controls that satisfy the requirements of the new guidance.

For available-for-sale debt securities, the new guidance prospectively replaces the other-than-temporary impairment model and requires the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. Our available-for-sale debt securities only consist of U.S. Treasury or U.S. government-sponsored agencies securities; therefore, we do not currently expect the impact of the new guidance on available-for-sale securities to be material at adoption.

NOTE 2 – SIGNIFICANT EVENTS

On June 26, 2019, OFG Bancorp (the “Company”) and Oriental Bank, a wholly-owned subsidiary of the Company (“Oriental Bank”), 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.

The transactions contemplated by the Purchase Agreements (the “Scotiabank Transaction”), which are expected to close before year end of 2019, are subject to receipt of the requisite regulatory approvals, as well as the satisfaction of other customary closing conditions.

The Stock Purchase Agreement

On the terms and subject to the conditions set forth in the Stock Purchase Agreement, Oriental Bank will acquire (i) all of the issued and outstanding shares of common stock, par value $10.00 per share, of Scotiabank de Puerto Rico, a bank chartered under the laws of Puerto Rico (“SBPR”), and (ii) all of the issued and outstanding shares of second preferred non-cumulative redeemable stock, par value $10.00 per share, of SBPR (the “Preferred Stock”) (excluding any shares of Preferred Stock redeemed by SBPR prior to the SBPR Closing (as defined below) ((i) and (ii), the “Stock Purchase”). In addition, the Stock Purchase Agreement contemplates that, immediately following the consummation of the Stock Purchase, SBPR will merge with and into Oriental Bank, with Oriental Bank continuing as the surviving bank (the “Bank Merger”).

The consideration payable by Oriental Bank to BNS at the closing of the Stock Purchase (the “SBPR Closing” and the date on which the SBPR Closing occurs, the “Closing Date”) will be $550,000,000 in cash minus the amount of any Pre-Closing Secondary Dividend (as defined below) actually paid to BNS after the execution of the Stock Purchase Agreement but on or prior to the Closing Date. In addition, the Stock Purchase Agreement contemplates that, prior to the SBPR Closing, SBPR will pay BNS (a) one or more dividends in an aggregate amount equal to $200,000,000 (subject to certain adjustments set forth in the schedules to the Stock Purchase Agreement) (the “Pre-Closing Primary Dividend”) and (b) secondarily to the Pre-Closing Primary Dividend, one or more additional dividends in an aggregate amount not to exceed $125,000,000 (the “Pre-Closing Secondary Dividend”).

The obligations of Oriental Bank and BNS to consummate the Stock Purchase are subject to the satisfaction or waiver of certain customary closing conditions, including (a) the receipt of the requisite regulatory approvals, including the requisite regulatory approvals of the Puerto Rico Office of the Commissioner of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (and, in the case of Oriental Bank’s obligations to consummate the Stock Purchase, without the imposition of a Burdensome Condition (as defined below)), (b) the accuracy of the other party’s representations and warranties, subject to certain timing and materiality standards, (c) compliance in all material respects by the other party with its pre-closing covenants and agreements contained in the Stock Purchase Agreement and (d) the absence of any injunction or order prohibiting the consummation of the Stock Purchase, the Bank Merger or the other transactions contemplated by the Stock Purchase Agreement. The obligations of BNS to consummate the Stock Purchase are also subject to receiving the requisite regulatory approval for the payment of the Pre-Closing Primary Dividend. The Stock Purchase is not conditioned on the consummation of the transactions contemplated by the USVI Purchase Agreement or the PR Purchase Agreement.

Under the Stock Purchase Agreement, Oriental Bank and BNS agreed to use reasonable best efforts to obtain the requisite regulatory approvals. In addition, the Company and Oriental Bank agreed to take all actions necessary (including Remedial Actions and Capital Actions (each as defined in the Stock Purchase Agreement)) to obtain the applicable requisite regulatory approvals and consummate the Scotiabank Transaction as promptly as practicable, subject to an exception that provides that neither the Company nor Oriental Bank is required to take, or agree to take, any action that would constitute a Burdensome Condition. Under the Stock Purchase Agreement, the term “Remedial Action” is defined to include, among other things, divestitures, licenses or other dispositions of, or the holding separate of, deposits, loans, branches or operations of SBPR, the Company, Oriental Bank or their affiliates, and the term “Capital Acton” is defined to include, among other things, capital level and capital ratio maintenance commitments, capital plan creation and capital raising transactions. The Stock Purchase Agreement defines “Burdensome Condition” as any action, restriction or condition that would reasonably be expected to be materially burdensome to the Company, Oriental Bank and their affiliates, taken as a whole, following the consummation of the Stock Purchase, the Bank Merger or the transactions contemplated by the USVI Purchase Agreement or the PR Purchase Agreement. However, the Stock Purchase Agreement provides that a Capital Action will not constitute or be considered in determining whether any required action constitutes, a Burdensome Condition.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Stock Purchase Agreement provides that, for three years after the Closing Date, BNS will not operate an FDIC-insured depository institution in Puerto Rico, offer retail banking or retail consumer finance products or services in Puerto Rico (excluding certain wealth management services) or accept deposits insured by the FDIC in Puerto Rico, in each case, subject to certain exceptions set forth in the Stock Purchase Agreement. In addition, from the date of the Stock Purchase Agreement and continuing for two years following the Closing Date, BNS agreed to certain restrictions on soliciting and hiring SBPR employees and soliciting SBPR customers, and Oriental Bank agreed to certain restrictions on soliciting and hiring certain BNS employees and soliciting certain BNS customers, in each case, subject to certain exceptions set forth in the Stock Purchase Agreement.

The Stock Purchase Agreement contains certain customary representations and warranties made by each party, which are qualified by confidential disclosures provided to each party by the other party in connection with the Stock Purchase Agreement. Each of Oriental Bank and BNS has agreed to various customary covenants, including, in the case of BNS, covenants regarding the conduct of SBPR’s business prior to the SBPR Closing. The Stock Purchase Agreement provides for post-Closing indemnification obligations with respect to breaches of the representations, warranties and covenants of each party in the Purchase Agreements, as well as indemnification obligations with respect to certain other matters. Each party’s indemnification obligations with respect to breaches of its representations and warranties generally are subject to a de minimis “per loss” requirement of $100,000 , a deductible basket equal to 1 % of the aggregate purchase price under the Purchase Agreements and a cap equal to 10 % of the aggregate purchase price under the Purchase Agreements, except for breaches of certain fundamental representations and warranties. Following the SBPR Closing, during any period in which the USVI Transaction (as defined below) or the PR Transaction (as defined below) has not been consummated, the indemnification deductible basket will be reduced by 1 % of the purchase price under the USVI Purchase Agreement and 1 % of the purchase price under the PR Purchase Agreement, as applicable, and the indemnification cap will be reduced by 10 % of the purchase price under the USVI Purchase Agreement and 10% of the purchase price under the PR Purchase Agreement, as applicable.

Each party has the right to terminate the Stock Purchase Agreement under certain circumstances, including if the Stock Purchase has not occurred on or prior to March 26, 2020, subject to an extension by either party until June 26, 2020 if the requisite regulatory approvals have not been obtained. Upon the termination of the Stock Purchase Agreement as a result of the failure to obtain the requisite regulatory approvals as of the outside date referenced above (as extended), Oriental Bank will be required to reimburse BNS for its reasonable and documented out-of-pocket transaction expenses. The Stock Purchase Agreement also provides that the aggregate amount of reimbursable expenses under the Stock Purchase Agreement, the USVI Purchase Agreement and the PR Purchase Agreement will not exceed $2,000,000.

USVI Purchase Agreement

On the terms and subject to the conditions set forth in the USVI Purchase Agreement, at the closing of the transactions contemplated by the USVI Purchase Agreement (the “USVI Closing” and the date on which the USVI Closing occurs the “USVI Closing Date”), Oriental Bank will acquire the U.S. Virgin Islands (the “USVIs”) banking operations of BNS through an acquisition of certain assets (including loans, ATMs and physical branch locations) and an assumption of certain liabilities (including deposits) (the “USVI Transaction”). The consideration payable in the USVI Transaction will be equal to the difference between (a) the sum of (i) cash on hand at the purchased branches and cash located in the purchased ATMs, (ii) the net book value of the purchased assets (which, in the case of the purchased loans, will be equal to the gross book value of the purchased loans minus $6,700,000 (or, if greater, the actual amount of reserves associated with the purchase loans as of the close of business on the day immediately preceding the USVI Closing Date)), (iii) a $10,000,000 deposit premium and (iv) the fair market value of Other Assets (as defined in the USVI Purchase Agreement) that Oriental Bank elects to include as a purchased asset and (b) the net book value of the assumed liabilities, in each case, as of the close of business on the day immediately preceding the USVI Closing Date. If the foregoing calculation produces a positive number, that amount will be payable by Oriental Bank to BNS at the USVI Closing and if the foregoing calculation produces a negative number, the absolute value of that amount will be payable by BNS to Oriental Bank at the USVI Closing.

The obligations of Oriental Bank and BNS to consummate the USVI Transaction are subject to the satisfaction or waiver of certain customary closing conditions, including (a) the receipt of the requisite regulatory approvals, including the requisite regulatory approvals of the Puerto Rico Office of the Commissioner of Financial Institutions, the Federal Deposit Insurance Corporation, the Virgin Islands Banking Board and the Lieutenant Governor of the Virgin Islands, Division of Banking, Insurance and Financial Regulation (and, in the case of Oriental Bank’s obligations to consummate the USVI Transaction, without the imposition of a Burdensome Condition), (b) the accuracy of the other party’s representations and warranties, subject to certain timing and materiality standards, (c) compliance in all material respects by the other party with its pre-closing covenants and agreements contained in the USVI Purchase Agreement and (d) the absence of any injunction or order prohibiting the consummation of the transactions

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

contemplated by the USVI Purchase Agreement. The consummation of the USVI Transaction is also subject to the consummation of the Stock Purchase either substantially contemporaneously with or prior to the USVI Closing.

The covenants and agreements in the Stock Purchase Agreement that address the obligations of the parties to obtain the requisite regulatory approvals, including those provisions addressing Remedial Actions, Capital Actions and Burdensome Conditions, also apply under the USVI Purchase Agreement with respect to the requisite regulatory approvals for the USVI Transactions.

The USVI Purchase Agreement provides that, for three years after the USVI Closing Date, BNS will not (a) open or operate a branch, subsidiary or depository institution that accepts deposits in the USVIs or (b) offer retail banking or retail consumer finance products or services in the USVIs (excluding certain wealth management services), in each case, subject to certain exceptions set forth in the USVI Purchase Agreement. In addition, from the date of the USVI Purchase Agreement and continuing for two years following the USVI Closing Date, BNS agreed to certain restrictions on soliciting and hiring USVI branch employees and soliciting USVI branch customers, in each case, subject to certain exceptions set forth in the USVI Purchase Agreement.

The USVI Purchase Agreement contains certain customary representations and warranties made by each party, which are qualified by confidential disclosures provided to each party by the other party in connection with the USVI Purchase Agreement. Each of Oriental Bank and BNS has agreed to various customary covenants, including, in the case of BNS, covenants regarding the conduct of the USVI branch business prior to the USVI Closing.

Each party has the right to terminate the USVI Purchase Agreement under certain circumstances, including if (i) the Stock Purchase Agreement has been terminated or (ii) the USVI Transactions have not occurred on or prior to March 26, 2020, subject to an extension by either party until June 26, 2020 if the requisite regulatory approvals have not been obtained. If the Stock Purchase has not been consummated and the USVI Purchase Agreement is terminated as a result of the failure to obtain the requisite regulatory approvals as of the outside date referenced above (as extended), Oriental Bank will be required to reimburse BNS for its reasonable and documented out-of-pocket transaction expenses. The USVI Purchase Agreement also provides that the aggregate amount of reimbursable expenses under the Stock Purchase Agreement, the USVI Purchase Agreement and the PR Purchase Agreement will not exceed $2,000,000.

PR Purchase Agreement

On the terms and subject to the conditions set forth in the PR Purchase Agreement, at the closing of the transactions contemplated by the PR Purchase Agreement (the “PR Closing” and the date on which the PR Closing occurs, the “PR Closing Date”), Oriental Bank will acquire certain loans and other assets, and assume certain deposits and other liabilities, from BNS’s Puerto Rico branch (the “PR Transaction”). The consideration payable in the PR Transaction will be equal to the difference between (a) the net book value of the purchased assets (which, in the case of the purchased loans, will be equal to the gross book value of the purchased loans minus $27,700,000 (or, if greater, the actual amount of reserves associated with the purchase loans as of the PR Effective Time (as defined in the PR Purchase Agreement))) and (b) the net book value of the assumed liabilities, in each case, as of PR Effective Time. If the foregoing calculation produces a positive number, that amount will be payable by Oriental Bank to BNS at the PR Closing and if the foregoing calculation produces a negative number, the absolute value of that amount will be payable by BNS to Oriental Bank at the PR Closing.

The obligations of Oriental Bank and BNS to consummate the PR Transaction are subject to the satisfaction or waiver of certain customary closing conditions, including (a) the receipt of required regulatory approvals of the Federal Deposit Insurance Corporation (and, in the case of Oriental Bank’s obligations to consummate the PR Transaction, without the imposition of a Burdensome Condition), (b) the accuracy of the other party’s representations and warranties, subject to certain timing and materiality standards, (c) compliance in all material respects by the other party with its pre-closing covenants and agreements contained in the PR Purchase Agreement and (d) the absence of any injunction or order prohibiting the consummation of the transactions contemplated by the PR Purchase Agreement. The consummation of the PR Transaction is also subject to the consummation of the Stock Purchase either substantially contemporaneously with or prior to the PR Closing.

The covenants and agreements in the Stock Purchase Agreement that address the obligations of the parties to obtain the requisite regulatory approvals, including those provisions addressing Remedial Actions, Capital Actions and Burdensome Conditions, also apply under the PR Purchase Agreement with respect to the requisite regulatory approvals for the PR Transaction.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Under the PR Purchase Agreement, from the date of the PR Purchase Agreement and continuing for two years following the PR Closing Date, BNS agreed to certain restrictions on soliciting PR branch customers, subject to certain exceptions set forth in the PR Purchase Agreement.

The PR Purchase Agreement contains certain customary representations and warranties made by each party, which are qualified by confidential disclosures provided to each party by the other party in connection with the PR Purchase Agreement. Each of Oriental Bank and BNS has agreed to various customary covenants, including, in the case of BNS, covenants regarding the administration of the purchased assets and assumed liabilities of PR branch prior to the PR Closing.

Each party has the right to terminate the PR Purchase Agreement under certain circumstances, including if (i) the Stock Purchase Agreement has been terminated or (ii) the PR Transactions have not occurred on or prior to March 26, 2020, subject to an extension by either party until June 26, 2020 if the requisite regulatory approvals have not been obtained. If the Stock Purchase has not been consummated and the PR Purchase Agreement is terminated as a result of the failure to obtain the requisite regulatory approvals as of the outside date referenced above (as extended), Oriental Bank will be required to reimburse BNS for its reasonable and documented out-of-pocket transaction expenses. The PR Purchase Agreement also provides that the aggregate amount of reimbursable expenses under the Stock Purchase Agreement, the USVI Purchase Agreement and the PR Purchase Agreement will not exceed $2,000,000.

The foregoing description of the Purchase Agreements and related transactions does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreements, which were filed as Exhibit 2.1, Exhibit 2.2 and Exhibit 2.3 to the Current Report on Form 8-K on July 2, 2019, and are incorporated therein by reference. The Purchase Agreements establish and govern the legal relations between the parties with respect to the transactions contemplated thereby and are not intended to be a source of factual, business or operational information about the parties or their respective businesses. The representations and warranties set forth in the Purchase Agreements may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to shareholders or different from what a shareholder might view as material, may have been used for purposes of allocating risk between the parties to the Purchase Agreements rather than establishing matters as facts, may have been qualified by certain disclosures not reflected in the Purchase Agreements that were made to the other party in connection with the negotiation of the Purchase Agreements and generally were solely for the benefit of the parties to the Purchase Agreements.

Accordingly, investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances because they were only made as of the date of the Purchase Agreements and are modified by confidential disclosure schedules delivered in connection with the Purchase Agreements. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the Purchase Agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

NOTE 23 – RESTRICTED CASH

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

	March 31,		December 31,		September 30,		December 31,
	2019		2018		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		1,050	��	1,050
	$	3,030	$	3,030	$	1,050	$	3,030

At ~~March 31,~~September 30, 2019 and December 31, 2018, the Bank’s international banking entities, OIB and Oriental Overseas, a division of the Bank, held short-term highly liquid securities in the amount of $305 thousand and $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. These instruments cannot be withdrawn or transferred by OIB or Oriental Overseas without the prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (the "OCFI").

As part of its derivative activities, Oriental ~~has entered~~enters into collateral agreements with certain financial counterparties. At ~~both March 31,~~September 30, 2019 ~~and~~collateral agreements have expired. At December 31, 2018, Oriental had delivered approximately $2.0 million of cash as collateral for such derivatives activities.

Oriental has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At ~~both March 31,~~September 30, 2019 and December 31, 2018, Oriental delivered as collateral cash amounting to approximately $1.1 ~~million.~~million, for both periods.

~~OFG BANCORP~~

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

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 ~~March 31,~~September 30, 2019 was ~~$212.2~~$210.4 million (December 31, 2018 - $211.6 million). At ~~March 31,~~September 30, 2019 and December 31, 2018, the Bank complied with 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 34 – 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 ~~March 31,~~September 30, 2019 and December 31, 2018, money market instruments included as part of cash and cash equivalents amounted to ~~$7.7~~$8.0 million and $4.9 million, respectively.

Investment Securities

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

	March 31, 2019									September 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	$	947,332	$	2,504	$	12,558	$	937,278	2.37%	$	426,192	$	563	$	2,586	$	424,169	2.01%
GNMA certificates		224,157		3,072		671		226,558	3.15%		25,329		502		-		25,831	2.87%
CMOs issued by US government-sponsored agencies		62,927		-		1,538		61,389	1.90%		55,457		17		371		55,103	1.90%
Total mortgage-backed securities		1,234,416		5,576		14,767		1,225,225	2.49%		506,978		1,082		2,957		505,103	2.04%
Investment securities
US Treasury securities		10,933		-		74		10,859	1.37%		10,947		-		10		10,937	1.33%
Obligations of US government-sponsored agencies		2,238		-		42		2,196	1.38%		2,040		-		10		2,030	1.38%
Other debt securities		1,162		27		-		1,189	2.99%		995		30		-		1,025	2.99%
Total investment securities		14,333		27		116		14,244	1.50%		13,982		30		20		13,992	1.45%
Total securities available for sale	$	1,248,749	$	5,603	$	14,883	$	1,239,469	2.47%	$	520,960	$	1,112	$	2,977	$	519,095	2.02%

1217

~~OFG BANCORP~~

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

	December 31, 2018
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized		Fair		Average
	Cost		Gains		Losses		Value		Yield
	(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	561,878	$	404	$	8,951	$	553,331	2.59%
GNMA certificates		211,947		1,050		2,827		210,170	3.10%
CMOs issued by US government-sponsored agencies		66,230		-		2,166		64,064	1.90%
Total mortgage-backed securities		840,055		1,454		13,944		827,565	2.66%
Investment securities
US Treasury securities		10,924		-		119		10,805	1.36%
Obligations of US government-sponsored agencies		2,325		-		60		2,265	1.38%
Other debt securities		1,207		15		-		1,222	2.99%
Total investment securities		14,456		15		179		14,292	1.50%
Total securities available-for-sale	$	854,511	$	1,469	$	14,123	$	841,857	2.64%

Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates	$	424,740	$	-	$	14,387	$	410,353	2.07%

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

The amortized cost and fair value of Oriental’s investment securities at ~~March 31,~~September 30, 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.

	September 30, 2019
	Available-for-sale
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities
Due from 1 to 5 years
FNMA and FHLMC certificates	$	2,041	$	2,070
Total due from 1 to 5 years		2,041		2,070
Due after 5 to 10 years
CMOs issued by US government-sponsored agencies	$	48,756	$	48,401
FNMA and FHLMC certificates		108,573		108,256
Total due after 5 to 10 years		157,329		156,657
Due after 10 years
FNMA and FHLMC certificates	$	315,578	$	313,843
GNMA certificates		25,329		25,831
CMOs issued by US government-sponsored agencies		6,701		6,702
Total due after 10 years		347,608		346,376
Total mortgage-backed securities		506,978		505,103
Investment securities
Due less than one year
US Treasury securities	$	10,947	$	10,937
Total due in less than one year		10,947		10,937
Due from 1 to 5 years
Obligations of US government-sponsored agencies	$	2,040	$	2,030
Other debt securities		100		100
Total due from 1 to 5 years		2,140		2,130
Due from 5 to 10 years
Other debt securities		895		925
Total due after 5 to 10 years		895		925
Total investment securities		13,982		13,992
Total	$	520,960	$	519,095

~~OFG BANCORP~~

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

March 31, 2019

Available-for-sale

Amortized Cost

Fair Value

(In thousands)
Mortgage-backed securities

    Due from 1 to 5 years

        FNMA and FHLMC certificates
$
3,056

$
3,054
            Total due from 1 to 5 years

3,056

3,054
    Due after 5 to 10 years

        CMOs issued by US government-sponsored agencies
$
55,367

$
53,936
        FNMA and FHLMC certificates

267,310

266,195
        GNMA certificates

94

98
            Total due after 5 to 10 years

322,771

320,229
    Due after 10 years

        FNMA and FHLMC certificates
$
676,966

$
668,029
        GNMA certificates

224,063

226,460
        CMOs issued by US government-sponsored agencies

7,560

7,453
            Total due after 10 years

908,589

901,942
                Total mortgage-backed securities

1,234,416

1,225,225
Investment securities

    Due less than one year

        US Treasury securities
$
10,933

$
10,859
            Total due in less than one year

10,933

10,859
    Due from 1 to 5 years

        Obligations of US government-sponsored agencies
$
2,238

$
2,196
        Other debt securities

100

100
            Total due from 1 to 5 years

2,338

2,296
    Due from 5 to 10 years

        Other debt securities

1,062

1,089
            Total due after 5 to 10 years

1,062

1,089
                Total investment securities

14,333

14,244
Total
$
1,248,749

$
1,239,469

During the ~~quarter~~nine-month period ended ~~March 31,~~September 30, 2019, Oriental retained securitized GNMA pools totaling ~~$15.1~~$45.7 million amortized cost, at a yield of ~~3.84%~~3.42% from its own originations, ~~while~~and during the ~~year~~nine-month period ended ~~March 31,~~September 30, 2018, ~~that amount totaled $18.0 million amortized cost, at a yield of 3.26%.~~Oriental did not retain any securitized GNMA pools.

During the ~~quarters~~nine-month period ended ~~March 31,~~September 30, 2019 Oriental sold $680.5 million available-for-sale mortgage-backed securities and recognized a gain in the sale of $8.3 million. During the nine-month period ended September 30, 2018, Oriental sold $14.7 million of available-for-sale Government National Mortgage Association (“GNMA”) certificates from its recurring mortgage loan origination and securitization activities. Oriental did not ~~sell mortgage-backed securities~~realize any gains or ~~investment securities.~~losses these sales during such period.

	Nine-Month Period Ended September 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	$	451,081	$	447,305	$	3,776	$	-
GNMA certificates	$	229,385	$	224,887	$	4,498	$	-
Total	$	680,466	$	672,192	$	8,274	$	-


	Nine-Month Period Ended September 30, 2018
			Book Value
Description	Sale Price		at Sale		Gross Gains		Gross Losses
	(In thousands)
Sale of securities available-for-sale
Mortgage-backed securities
GNMA certificates	$	14,746	$	14,746	$	-	$	-
Total	$	14,746	$	14,746	$	-	$	-

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 ~~at March 31, 2019~~ and held-to-maturity at ~~March 31,~~September 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:

	March 31, 2019						September 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	$	62,927	$	1,538	$	61,389	$	38,170	$	336	$	37,834
FNMA and FHLMC certificates		686,773		12,558		674,215		343,004		2,582		340,422
Obligations of US Government and sponsored agencies		2,238		42		2,196		2,040		10		2,030
GNMA certificates		73,290		670		72,620		19		-		19
US Treasury Securities		9,983		74		9,909		9,997		10		9,987
	$	835,211	$	14,882	$	820,329	$	393,230	$	2,938	$	390,292

	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
GNMA certificates		20		1		19
CMOs issued by US Government-sponsored agencies								12,081		35		12,046
FNMA and FHLMC certificates								3,578		4		3,574
US Treasury Securities								322		-		322
	$	20	$	1	$	19	$	15,981	$	39	$	15,942

	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	$	62,927	$	1,538	$	61,389	$	50,251	$	371	$	49,880
FNMA and FHLMC certificates		686,773		12,558		674,215		346,582		2,586		343,996
Obligations of US government and sponsored agencies		2,238		42		2,196		2,040		10		2,030
GNMA certificates		73,310		671		72,639		19		-		19
US Treasury Securities		9,983		74		9,909		10,319		10		10,309
	$	835,231	$	14,883	$	820,348	$	409,211	$	2,977	$	406,234

1520

~~OFG BANCORP~~20

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

	December 31, 2018
	12 months or more
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	$	66,230	$	2,166	$	64,064
FNMA and FHLMC certificates		357,955		8,603		349,352
Obligations of US Government and sponsored agencies		2,325		60		2,265
GNMA certificates		131,044		2,739		128,305
US Treasury Securities		9,977		119		9,858
	$	567,531	$	13,687	$	553,844
Securities held-to-maturity
FNMA and FHLMC certificates	$	424,740	$	14,387	$	410,353

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

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies		66,230		2,166		64,064
FNMA and FHLMC certificates		467,727		8,951		458,776
Obligations of US government and sponsored agencies		2,325		60		2,265
GNMA certificates		148,170		2,827		145,343
US Treasury Securities		10,300		119		10,181
	$	694,752	$	14,123	$	680,629
Securities held-to-maturity
FNMA and FHLMC certificates	$	424,740	$	14,387	$	410,353

1621

~~OFG BANCORP~~21

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

Oriental performs valuations of ~~the~~its 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).~~income. 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 ($~~835.2~~409.2 million, amortized cost) with an unrealized loss position at ~~March 31,~~September 30, 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.

NOTE 45 - 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.

1722

~~OFG BANCORP~~22

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

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

	March 31,		December 31,		September 30,		December 31,
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Originated and other loans and leases held for investment:
Mortgage	$	651,423	$	668,809	$	589,383	$	668,809
Commercial		1,569,551		1,597,588		1,573,629		1,597,588
Consumer		350,543		348,980		362,358		348,980
Auto and leasing		1,167,482		1,129,695		1,266,066		1,129,695
		3,738,999		3,745,072		3,791,436		3,745,072
Allowance for loan and lease losses on originated and other loans and leases		(94,035)		(95,188)		(79,089)		(95,188)
		3,644,964		3,649,884		3,712,347		3,649,884
Deferred loan costs, net		8,254		7,740		9,608		7,740
Total originated and other loans held for investment, net		3,653,218		3,657,624		3,721,955		3,657,624
Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		2,405		2,546		2,217		2,546
Consumer		22,768		23,988		21,461		23,988
Auto		2,336		4,435		237		4,435
		27,509		30,969		23,915		30,969
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20		(1,968)		(2,062)		(1,490)		(2,062)
		25,541		28,907		22,425		28,907
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		484,578		492,890		439,675		492,890
Commercial		176,908		182,319		155,653		182,319
Auto		9,866		14,403		3,883		14,403
		671,352		689,612		599,211		689,612
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30		(42,133)		(42,010)		(51,394)		(42,010)
		629,219		647,602		547,817		647,602
Total acquired BBVAPR loans, net		654,760		676,509		570,242		676,509
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		62,649		63,392		54,603		63,392
Commercial		46,588		47,826		46,412		47,826
Consumer		856		846		802		846
Total acquired Eurobank loans		110,093		112,064		101,817		112,064
Allowance for loan and lease losses on Eurobank loans		(24,352)		(24,971)		(22,370)		(24,971)
Total acquired Eurobank loans, net		85,741		87,093		79,447		87,093
Total acquired loans, net		740,501		763,602		649,689		763,602
Total held for investment, net		4,393,719		4,421,226		4,371,644		4,421,226
Mortgage loans held-for-sale		7,682		10,368		23,504		10,368
Other loans held for sale						12,042		-
Total loans, net	$	4,401,401	$	4,431,594	$	4,407,190	$	4,431,594

1823

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Originated and Other Loans and Leases Held for Investment

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

The tables below present the aging of the recorded investment in gross originated and other loans held for investment at ~~March 31,~~September 30, 2019 and December 31, 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.

1924

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	March 31, 2019														September 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)
Mortgage
Traditional (by origination year):
Up to the year 2002	$	243	$	972	$	2,695	$	3,910	$	35,619	$	39,529	$	164	$	72	$	663	$	1,107	$	1,842	$	33,451	$	35,293	$	192
Years 2003 and 2004		144		2,715		4,934		7,793		66,079		73,872		-		142		2,472		1,529		4,143		61,395		65,538		-
Year 2005		86		1,668		3,098		4,852		33,355		38,207		-		80		982		1,151		2,213		31,291		33,504		-
Year 2006		228		1,658		4,729		6,615		47,844		54,459		-		227		970		1,227		2,424		46,102		48,526		-
Years 2007, 2008 and 2009		-		810		5,832		6,642		51,783		58,425		55		-		557		1,137		1,694		48,994		50,688		139
Years 2010, 2011, 2012, 2013		286		722		7,001		8,009		103,092		111,101		307		300		1,211		2,630		4,141		94,626		98,767		89
Years 2014, 2015, 2016, 2017 and 2018		-		707		1,844		2,551		139,629		142,180		-		-		493		208		701		139,022		139,723		-
		987		9,252		30,133		40,372		477,401		517,773		526		821		7,348		8,989		17,158		454,881		472,039		420
Non-traditional		-		364		2,617		2,981		10,225		13,206		-		-		-		1,072		1,072		8,868		9,940		-
Loss mitigation program		11,639		4,533		19,026		35,198		72,059		107,257		1,645		8,989		4,473		8,503		21,965		73,808		95,773		2,477
		12,626		14,149		51,776		78,551		559,685		638,236		2,171		9,810		11,821		18,564		40,195		537,557		577,752		2,897
Home equity secured personal loans		-		-		9		9		236		245		-		-		-		-		-		228		228		-
GNMA's buy-back option program		-		-		12,942		12,942		-		12,942		-		-		-		11,403		11,403		-		11,403		-
		12,626		14,149		64,727		91,502		559,921		651,423		2,171		9,810		11,821		29,967		51,598		537,785		589,383		2,897
Commercial
Commercial secured by real estate:
Corporate		-		-		-		-		272,698		272,698		-		-		-		7,264		7,264		235,585		242,849		-
Institutional		-		-		1,167		1,167		67,759		68,926		-		-		-		-		-		76,055		76,055		-
Middle market		9,966		-		6,510		16,476		189,673		206,149		-		-		-		5,084		5,084		199,798		204,882		-
Retail		593		522		8,036		9,151		221,814		230,965		-		2,954		466		2,503		5,923		218,702		224,625		-
Floor plan		-		-		-		-		4,098		4,098		-		-		-		-		-		3,136		3,136		-
Real estate		-		-		-		-		18,664		18,664		-		-		-		-		-		17,966		17,966		-
US Loan Program																-		-		-		-		16,782		16,782		-
		10,559		522		15,713		26,794		774,706		801,500		-		2,954		466		14,851		18,271		768,024		786,295		-
Other commercial and industrial:
Corporate		150		-		-		150		148,258		148,408		-		-		-		-		-		160,222		160,222		-
Institutional		-		-		-		-		146,380		146,380		-		-		-		-		-		153,981		153,981		-
Middle market		464		298		5,982		6,744		85,771		92,515		-		63		-		4,842		4,905		72,676		77,581		-
Retail		743		89		1,200		2,032		330,094		332,126		-		696		224		297		1,217		108,987		110,204		-
Floor plan		-		-		17		17		48,605		48,622		-		-		-		3		3		38,567		38,570		-
US Loan Program																-		-		-		-		246,776		246,776		-
		1,357		387		7,199		8,943		759,108		768,051		-		759		224		5,142		6,125		781,209		787,334		-
		11,916		909		22,912		35,737		1,533,814		1,569,551		-		3,713		690		19,993		24,396		1,549,233		1,573,629		-

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 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	$	713	$	356	$	592	$	1,661	$	26,104	$	27,765	$	-
Overdrafts		38		-		-		38		406		444		-
Personal lines of credit		8		26		76		110		1,801		1,911		-
Personal loans		5,058		2,185		1,386		8,629		307,240		315,869		-
Cash collateral personal loans		147		19		306		472		15,897		16,369		-
		5,964		2,586		2,360		10,910		351,448		362,358		-
Auto and leasing		72,967		30,379		14,220		117,566		1,148,500		1,266,066		-
Total	$	92,454	$	45,476	$	66,540	$	204,470	$	3,586,966	$	3,791,436	$	2,897

2026

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

March 31, 2019

Loans 90+

Days Past

Due and

30-59 Days

60-89 Days

90+ Days

Total Past

Still

Past Due

Past Due

Past Due

Due

Current

Total Loans

Accruing

(In thousands)

Consumer

        Credit cards
$
803

$
281

$
732

$
1,816

$
26,110

$
27,926

$
-
        Overdrafts

35

-

-

35

137

172

-
        Personal lines of credit

89

3

29

121

1,808

1,929

-
        Personal loans

4,566

1,746

1,025

7,337

297,271

304,608

-
        Cash collateral personal loans

261

11

292

564

15,344

15,908

-

5,754

2,041

2,078

9,873

340,670

350,543

-
Auto and leasing

65,490

22,010

12,163

99,663

1,067,819

1,167,482

-
    Total
$
95,786

$
39,109

$
101,880

$
236,775

$
3,502,224

$
3,738,999

$
2,171

	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		210,251		220,925		-
Floor plan		-		-		-		-		4,184		4,184		-
Real estate		-		-		-		-		19,009		19,009		-
US Loan Program		-		-		-		-		3,189		3,189		-
		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		88,000		89,934		-
Floor plan		-		-		46		46		49,633		49,679		-
US Loan Program		-		-		-		-		220,278		220,278		-
		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~~27

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

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, 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	$	725	$	363	$	411	$	1,499	$	26,535	$	28,034	$	-
Overdrafts		10		-		-		10		204		214		-
Personal lines of credit		57		11		22		90		1,827		1,917		-
Personal loans		3,966		1,740		1,262		6,968		296,151		303,119		-
Cash collateral personal loans		74		339		3		416		15,280		15,696		-
		4,832		2,453		1,698		8,983		339,997		348,980		-
Auto and leasing		58,094		27,945		13,494		99,533		1,030,162		1,129,695		-
Total	$	77,788	$	47,254	$	113,022	$	238,064	$	3,507,008	$	3,745,072	$	2,717

At ~~both March 31,~~September 30, 2019, and December 31, 2018, Oriental had a carrying balance of $$96.7 ~~91.4~~ million and $91.4 million, respectively, 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. 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.

2328

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 ~~March 31,~~September 30, 2019 and December 31, 2018, by class of loans:

	March 31, 2019														September 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	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Floor plan		-		-		878		878		77		955		-		-		-		787		787		33		820		-
		-		-		932		932		77		1,009		-		-		-		787		787		33		820		-
Other commercial and industrial
Retail		17		50		-		67		1,329		1,396		-		29		35		21		85		1,312		1,397		-
		17		50		-		67		1,329		1,396		-		29		35		21		85		1,312		1,397		-
		17		50		932		999		1,406		2,405		-		29		35		808		872		1,345		2,217		-
Consumer
Credit cards		486		137		391		1,014		19,608		20,622		-		501		258		195		954		18,467		19,421		-
Personal loans		55		21		35		111		2,035		2,146		-		29		22		10		61		1,979		2,040		-
		541		158		426		1,125		21,643		22,768		-		530		280		205		1,015		20,446		21,461		-
Auto		210		150		100		460		1,876		2,336		-		55		51		44		150		87		237		-
Total	$	768	$	358	$	1,458	$	2,584	$	24,925	$	27,509	$	-	$	614	$	366	$	1,057	$	2,037	$	21,878	$	23,915	$	-

2429

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	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)
Commercial
Commercial secured by real estate
Retail	$	-	$	-	$	54	$	54	$	-	$	54	$	-
Floor plan		-		-		888		888		94		982		-
		-		-		942		942		94		1,036		-
Other commercial and industrial
Retail		30		11		8		49		1,461		1,510		-
		30		11		8		49		1,461		1,510		-
		30		11		950		991		1,555		2,546		-
Consumer
Credit cards		499		147		380		1,026		20,796		21,822		-
Personal loans		64		32		18		114		2,052		2,166		-
		563		179		398		1,140		22,848		23,988		-
Auto		405		241		200		846		3,589		4,435		-
Total	$	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 ~~March 31,~~September 30, 2019 and December 31, 2018 is as follows:

	March 31,		December 31,		September 30,		December 31,
		2019		2018		2019		2018
		(In thousands)				(In thousands)
Contractual required payments receivable:	$	1,279,147	$	1,304,545	$	1,168,109	$	1,304,545
Less: Non-accretable discount		342,902		345,423		347,726		345,423
Cash expected to be collected		936,245		959,122		820,383		959,122
Less: Accretable yield		264,893		269,510		221,172		269,510
Carrying amount, gross		671,352		689,612		599,211		689,612
Less: allowance for loan and lease losses		42,133		42,010		51,394		42,010
Carrying amount, net	$	629,219	$	647,602	$	547,817	$	647,602

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

At ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental had ~~$44.1~~$32.9 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 nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

	Quarter Ended March 31, 2019										Quarter Ended September 30, 2019
	Mortgage		Commercial		Auto		Consumer		Total		Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)										(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	232,199	$	36,508	$	243	$	560	$	269,510	$	217,549	$	34,638	$	43	$	288	$	252,518
Accretion		(6,350)		(2,656)		(216)		(298)		(9,520)		(5,876)		(2,379)		(77)		(151)		(8,483)
Change in expected cash flows		-		3,265		3		298		3,566		-		3,995		5		151		4,151
Transfer from (to) non-accretable discount		1,058		262		150		(133)		1,337
Transfer (to) from non-accretable discount												(9,849)		(17,128)		57		(94)		(27,014)
Balance at end of period	$	226,907	$	37,379	$	180	$	427	$	264,893	$	201,824	$	19,126	$	28	$	194	$	221,172

Non-Accretable Discount Activity:
Balance at beginning of period	$	291,887	$	10,346	$	24,245	$	18,945	$	345,423	$	292,258	$	10,904	$	24,083	$	18,810	$	346,055
Change in actual and expected losses		(729)		(173)		(39)		(243)		(1,184)		(21,356)		(3,913)		44		(118)		(25,343)
Transfer from accretable yield		(1,058)		(262)		(150)		133		(1,337)
Transfer from (to) accretable yield												9,849		17,128		(57)		94		27,014
Balance at end of period	$	290,100	$	9,911	$	24,056	$	18,835	$	342,902	$	280,751	$	24,119	$	24,070	$	18,786	$	347,726

	Quarter Ended March 31, 2018										Nine-Month Period Ended September 30, 2019
	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	$	232,199	$	36,508	$	243	$	560	$	269,510
Accretion		(7,073)		(3,685)		(869)		(256)		(11,883)		(18,342)		(7,523)		(432)		(639)		(26,936)
Change in expected cash flows		-		3,156		426		58		3,640		-		8,635		16		639		9,290
Transfer (to) from non-accretable discount		(3,046)		(524)		(597)		(38)		(4,205)		(12,033)		(18,494)		201		(366)		(30,692)
Balance at end of period	$	248,379	$	45,711	$	1,726	$	649	$	296,465	$	201,824	$	19,126	$	28	$	194	$	221,172

Non-Accretable Discount Activity:
Balance at beginning of period	$	299,501	$	10,596	$	23,050	$	19,284	$	352,431	$	291,887	$	10,346	$	24,245	$	18,945	$	345,423
Change in actual and expected losses		(1,440)		(389)		(204)		(13)		(2,046)		(23,169)		(4,721)		26		(525)		(28,389)
Transfer from accretable yield		3,046		524		597		38		4,205
Transfer from (to) accretable yield												12,033		18,494		(201)		366		30,692
Balance at end of period	$	301,107	$	10,731	$	23,443	$	19,309	$	354,590	$	280,751	$	24,119	$	24,070	$	18,786	$	347,726

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended September 30, 2018
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	243,903	$	42,521	$	1,071	$	497	$	287,992
Accretion		(6,722)		(3,977)		(466)		(88)		(11,253)
Change in expected cash flows		-		1,334		3		25		1,362
Transfer from (to) non-accretable discount		1,456		(1,140)		3		(26)		293
Balance at end of period	$	238,637	$	38,738	$	611	$	408	$	278,394

Non-Accretable Discount Activity:
Balance at beginning of period	$	296,137	$	11,143	$	23,645	$	19,332	$	350,257
Change in actual and expected losses		(1,860)		(1,125)		181		13		(2,791)
Transfer (to) from accretable yield		(1,456)		1,140		(3)		26		(293)
Balance at end of period	$	292,821	$	11,158	$	23,823	$	19,371	$	347,173

	Nine-Month Period Ended September 30, 2018
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	258,498	$	46,764	$	2,766	$	885	$	308,913
Accretion		(20,710)		(11,259)		(1,991)		(538)		(34,498)
Change in expected cash flows		-		7,265		829		156		8,250
Transfer from (to) non-accretable discount		849		(4,032)		(993)		(95)		(4,271)
Balance at end of period	$	238,637	$	38,738	$	611	$	408	$	278,394

Non-Accretable Discount Activity:
Balance at beginning of period	$	299,501	$	10,596	$	23,050	$	19,284	$	352,431
Change in actual and expected losses		(5,831)		(3,470)		(220)		(8)		(9,529)
Transfer (to) from accretable yield		(849)		4,032		993		95		4,271
Balance at end of period	$	292,821	$	11,158	$	23,823	$	19,371	$	347,173

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquired Eurobank Loans

The carrying amount of acquired Eurobank loans at ~~March 31,~~September 30, 2019 and December 31, 2018 is as follows:

	March 31		December 31,		September 30		December 31,
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Contractual required payments receivable	$	151,917	$	156,722	$	139,119	$	156,722
Less: Non-accretable discount		2,542		2,959		1,714		2,959
Cash expected to be collected		149,375		153,763		137,405		153,763
Less: Accretable yield		39,282		41,699		35,588		41,699
Carrying amount, gross		110,093		112,064		101,817		112,064
Less: Allowance for loan and lease losses		24,352		24,971		22,370		24,971
Carrying amount, net	$	85,741	$	87,093	$	79,447	$	87,093

The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and nine-months periods ended ~~March 31,~~September 30, 2019 and 2018:

	Quarter Ended March 31, 2019												Quarter Ended September 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	$	37,734		3,310		655		-		-		41,699	$	35,935		1,856		603		-		-		38,394
Accretion		(1,351)		(1,165)		-		(12)		(46)		(2,574)		(1,218)		(1,075)		-		3		(89)		(2,379)
Change in expected cash flows		(423)		(44)		-		(31)		87		(411)		1,917		550		-		(93)		132		2,506
Transfer (to) from non-accretable discount		408		159		(1)		43		(41)		568		(2,518)		(438)		(24)		90		(43)		(2,933)
Balance at end of period	$	36,368	$	2,260	$	654	$	-	$	-	$	39,282	$	34,116	$	893	$	579	$	-	$	-	$	35,588

Non-Accretable Discount Activity:
Balance at beginning of period	$	1,276		-		1,550		-		133		2,959	$	79		-		1,602		-		118		1,799
Change in actual and expected losses		7		159		-		43		(58)		151		(2,597)		(438)		-		90		(73)		(3,018)
Transfer from (to) accretable yield		(408)		(159)		1		(43)		41		(568)		2,518		438		24		(90)		43		2,933
Balance at end of period	$	875	$	-	$	1,551	$	-	$	116	$	2,542	$	-	$	-	$	1,626	$	-	$	88	$	1,714

2733

	Nine-Month Period Ended September 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	$	37,734	$	3,310	$	655	$	-	$	-	$	41,699
Accretion		(3,849)		(3,439)		-		(12)		(152)		(7,452)
Change in expected cash flows		1,524		1,416		-		(134)		250		3,056
Transfer (to) from non-accretable discount		(1,293)		(394)		(76)		146		(98)		(1,715)
Balance at end of period	$	34,116	$	893	$	579	$	-	$	-	$	35,588

Non-Accretable Discount Activity:
Balance at beginning of period	$	1,276	$	-	$	1,550	$	-	$	133	$	2,959
Change in actual and expected losses		(2,569)		(394)		-		146		(143)		(2,960)
Transfer from (to) accretable yield		1,293		394		76		(146)		98		1,715
Balance at end of period	$	-	$	-	$	1,626	$	-	$	88	$	1,714

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2018												Quarter Ended September 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	$	41,474	$	6,751	$	1,447		-	$	-	$	49,672	$	39,269	$	4,585	$	1,224		-	$	-	$	45,078
Accretion		(1,605)		(1,606)		-		(34)		(96)		(3,341)		(1,440)		(1,883)		-		(7)		(155)		(3,485)
Change in expected cash flows		(144)		898		-		(63)		178		869		6		2,063		-		(143)		283		2,209
Transfer from (to) non-accretable discount		(103)		(427)		(91)		97		(82)		(606)		188		(412)		(525)		150		(128)		(727)
Balance at end of period	$	39,622	$	5,616	$	1,356	$	-	$	-	$	46,594	$	38,023	$	4,353	$	699	$	-	$	-	$	43,075

Non-Accretable Discount Activity:
Balance at beginning of period	$	4,576	$	276	$	758	$	-	$	235	$	5,845	$	2,638	$	-	$	981	$	-	$	200	$	3,819
Change in actual and expected losses		(200)		(703)		-		97		(98)		(904)		63		(412)		-		150		(160)		(359)
Transfer (to) from accretable yield		103		427		91		(97)		82		606		(188)		412		525		(150)		128		727
Balance at end of period	$	4,479	$	-	$	849	$	-	$	219	$	5,547	$	2,513	$	-	$	1,506	$	-	$	168	$	4,187

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Nine-Month Period Ended September 30, 2018
	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	$	41,474	$	6,751	$	1,447	$	-	$	-	$	49,672
Accretion		(4,583)		(5,195)		-		(45)		(369)		(10,192)
Change in expected cash flows		(974)		4,793		-		(317)		697		4,199
Transfer from (to) non-accretable discount		2,106		(1,996)		(748)		362		(328)		(604)
Balance at end of period	$	38,023	$	4,353	$	699	$	-	$	-	$	43,075

Non-Accretable Discount Activity:
Balance at beginning of period	$	4,576	$	276	$	758	$	-	$	235	$	5,845
Change in actual and expected losses		43		(2,272)		-		362		(395)		(2,262)
Transfer (to) from accretable yield		(2,106)		1,996		748		(362)		328		604
Balance at end of period	$	2,513	$	-	$	1,506	$	-	$	168	$	4,187

2836

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 ~~March 31,~~September 30, 2019 and December 31, 2018:

	March 31,		December 31		September 30,		December 31
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Originated and other loans and leases held for investment
Mortgage
Traditional (by origination year):
Up to the year 2002	$	2,529	$	2,538	$	916	$	2,538
Years 2003 and 2004		5,217		5,818		1,529		5,818
Year 2005		3,098		3,600		1,151		3,600
Year 2006		4,729		5,140		1,227		5,140
Years 2007, 2008 and 2009		5,850		6,697		1,075		6,697
Years 2010, 2011, 2012, 2013		6,694		8,427		2,540		8,427
Years 2014, 2015, 2016, 2017 and 2018		1,844		1,462		208		1,462
		29,961		33,682		8,646		33,682
Non-traditional		2,617		3,085		1,072		3,085
Loss mitigation program		22,170		22,107		7,995		22,107
		54,748		58,874		17,713		58,874
Home equity loans, secured personal loans		9		-
		54,757		58,874
Commercial
Commercial secured by real estate
Corporate						7,264		-
Institutional		9,760		9,911		9,295		9,911
Middle market		7,114		7,266		5,860		7,266
Retail		15,950		16,123		7,824		16,123
		32,824		33,300		30,243		33,300
Other commercial and industrial
Middle market		6,401		6,481		4,841		6,481
Retail		2,251		2,629		514		2,629
Floor plan		17		46		3		46
		8,669		9,156		5,358		9,156
		41,493		42,456		35,601		42,456
Consumer
Credit cards		732		411		592		411
Overdrafts						-		-
Personal lines of credit		38		31		82		31
Personal loans		2,907		2,909		3,027		2,909
Cash collateral personal loans		294		3		307		3
		3,971		3,354		4,008		3,354
Auto and leasing		12,163		13,494		15,019		13,494
Total non-accrual originated loans	$	112,384	$	118,178	$	72,341	$	118,178

2937

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	March 31,		December 31,		September 30,		December 31,
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Acquired BBVAPR loans accounted for under ASC 310-20
Commercial
Commercial secured by real estate
Retail	$	54	$	54	$	-	$	54
Floor plan		878		888		787		888
		932		942		787		942
Other commercial and industrial
Retail		-		8		21		8
		-		8		808		950
		932		950
Consumer
Credit cards		391		380		195		380
Personal loans		35		18		10		18
		426		398		205		398
Auto		100		200		44		200
Total non-accrual acquired BBVAPR loans accounted for under ASC 310-20		1,458		1,548		1,057		1,548
Total non-accrual loans	$	113,842	$	119,726	$	73,398	$	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 ~~March 31,~~September 30, 2019 and December 31, 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 ~~$113.1~~$103.8 million and $112.9 million, respectively, as they are performing under their new terms.

At ~~March 31,~~September 30, 2019 and December 31, 2018, loans that are current in their monthly payments, but placed in non-accrual due to credit deterioration amounted to ~~$30.6~~$16.6 million and $21.2 million, respectively.

3038

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 ~~$89.4~~$59.5 million and $82.0 million at ~~March 31,~~September 30, 2019 and December 31, 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. The allowance for loan and lease losses for these impaired commercial loans amounted to ~~$10.9~~$4.9 million and $8.4 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was ~~$83.4~~$71.7 million and $84.2 million at ~~March 31,~~September 30, 2019 and December 31, 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 ~~$11.1~~$6.8 million and $10.2 million at ~~March 31,~~September 30, 2019 and December 31, 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 ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

	March 31, 2019							September 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	$	61,854	$	56,408	$	10,828	19%	$	34,590	$	30,813	$	4,849	16%
Residential impaired and troubled-debt restructuring		94,964		83,406		11,135	13%		78,836		71,658		6,816	10%
Impaired loans with no specific allowance:
Commercial		38,512		32,207		N/A	0%		36,139		28,016		N/A	0%
Total investment in impaired loans	$	195,330	$	172,021	$	21,963	13%	$	149,565	$	130,487	$	11,665	9%

	December 31, 2018
	Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage
	(In thousands)
Impaired loans with specific allowance:
Commercial	$	54,636	$	49,092	$	8,434	17%
Residential impaired and troubled-debt restructuring		95,659		84,174		10,186	12%
Impaired loans with no specific allowance
Commercial		38,241		32,137		N/A	0%
Total investment in impaired loans	$	188,536	$	165,403	$	18,620	11%

3139

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 ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:


	March 31, 2019							September 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	$	926	$	747	$	24	3%	$	926	$	678	$	19	3%
Impaired loans with no specific allowance
Commercial	$	-	$	-		N/A	0%	$	-	$	-		N/A	0%
Total investment in impaired loans	$	926	$	747	$	24	3%	$	926	$	678	$	19	3%


	December 31, 2018							December 31, 2018
	Unpaid		Recorded		Specific			Unpaid		Recorded		Specific
	Principal		Investment		Allowance		Coverage	Principal		Investment		Allowance		Coverage
	(In thousands)							(In thousands)
Impaired loans with specific allowance
Commercial	$	926	$	747	$	14	2%	$	926	$	747	$	14	2%
Impaired loans with no specific allowance
Commercial	$	-	$	-		N/A	0%	$	-	$	-		N/A	0%
Total investment in impaired loans	$	926	$	747	$	14	2%	$	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 ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

	March 31, 2019							September 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:
Mortgage	$	489,638	$	484,577	$	17,901	4%	$	433,079	$	439,676	$	20,458	5%
Commercial		162,612		156,682		20,733	13%		105,331		103,667		28,647	28%
Auto		10,336		9,866		3,499	35%		5,347		3,882		2,289	59%
Total investment in impaired loan pools	$	662,586	$	651,125	$	42,133	6%	$	543,757	$	547,225	$	51,394	9%

3240

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31 , 2018
							Coverage
	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance:
Mortgage	$	498,537	$	492,890	$	15,225	3%
Commercial		188,413		180,790		20,641	11%
Auto		14,551		14,403		6,144	43%
Total investment in impaired loan pools	$	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 ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

	March 31, 2019							September 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	$	66,713	$	60,642	$	15,110	25%	$	57,217	$	52,677	$	13,809	26%
Commercial		38,447		39,319		9,242	24%		36,094		38,383		8,561	22%
Total investment in impaired loan pools	$	105,160	$	99,961	$	24,352	24%	$	93,311	$	91,060	$	22,370	25%

	December 31, 2018
							Coverage
	Unpaid		Recorded		Specific		to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance
Loans secured by 1-4 family residential properties	$	70,153	$	63,406	$	15,382	24%
Commercial		47,342		47,820		9,585	20%
Consumer		15		4		4	100%
Total investment in impaired loan pools	$	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.

3341

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 nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

	Quarter Ended March 31,								Quarter Ended September 30,
	2019				2018				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	$	399	$	50,890	$	263	$	51,331	$	131	$	37,855	$	150	$	35,765
Residential troubled-debt restructuring		667		83,657		720		84,754		713		78,370		695		84,787
Impaired loans with no specific allowance
Commercial		305		32,246		176		17,764		305		30,673		271		31,315
		1,371		166,793		1,159		153,849		1,149		146,898		1,116		151,867
Acquired loans accounted for under ASC 310-20:
Impaired loans with specific allowance
Commercial		-		747		-		747		-		678		-		747
Impaired loans with no specific allowance
Commercial		-		-		-		-
Total interest income from impaired loans	$	1,371	$	167,540	$	1,159	$	154,596	$	1,149	$	147,576	$	1,116	$	152,614

	Nine-Month Period Ended September 30,
	2019					2018
	Interest Income Recognized		Average Recorded Investment			Interest Income Recognized		Average Recorded Investment
	(In thousands)
Originated and other loans held for investment:
Impaired loans with specific allowance
Commercial	$	394	$	47,379	$	432	$	44,691
Residential troubled-debt restructuring		2,080		81,741		2,028		84,671
Impaired loans with no specific allowance
Commercial		896		31,640		812		23,736
Total interest income from impaired loans	$	3,370	$	160,760	$	3,272	$	153,098

Acquired loans accounted for under ASC 310-20:
Impaired loans with specific allowance
Commercial	$	-	$	708	$	-	$	747
Impaired loans with no specific allowance
Total interest income from impaired loans	$	3,370	$	161,468	$	3,272	$	153,845

Modifications

The following tables present the troubled-debt restructurings in all loan portfolios during the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018.

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2019									Quarter Ended September 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)	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)									(Dollars in thousands)
Mortgage	38	$	4,494	5.52%	387	$	4,242	4.60%	353	21	$	2,446	5.97%	358	$	2,307	5.25%	345
Commercial	1		7	11.50%	36		7	11.50%	24	1		81	8.50%	60		81	8.50%	95
Consumer	71		963	15.20%	65		967	11.86%	73	124		1,818	16.50%	65		1,776	11.68%	75
Auto										8		112	6.96%	71		112	8.60%	43


	Quarter Ended March 31, 2018									Nine-Month Period Ended September 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)	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)									(Dollars in thousands)
Mortgage	38	$	5,747	5.69%	397	$	5,339	5.08%	363	109	$	13,940	5.91%	383	$	12,893	5.14%	346
Commercial	3		1,559	4.75%	72		1,555	4.75%	72	3		1,245	7.12%	55		1,245	5.96%	86
Consumer	28		354	15.75%	47		355	11.60%	69	265		3,833	15.92%	66		3,825	11.69%	75
Auto										21		305	7.35%	70		313	8.97%	45

	Quarter Ended September 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	21	$	2,621	5.42%	373	$	2,579	4.19%	344
Commercial	5		3,007	5.79%	71		3,002	5.10%	83
Consumer	52		758	15.06%	66		765	12.04%	73
Auto	2		40	10.28%	37		40	10.28%	37

	Nine-Month Period Ended September 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	104	$	14,087	5.61%	382	$	13,597	4.82%	344
Commercial	13		10,341	5.50%	53		10,332	5.74%	60
Consumer	101		1,469	15.58%	59		1,477	11.51%	72
Auto	2		40	10.28%	37		40	10.28%	37

The following table presents troubled-debt restructurings for which there was a payment default during the ~~twelve month~~twelve-month periods ended ~~March 31,~~September 30, 2019 and 2018:

	Twelve month Period Ended March 31,
��							Twelve month Period Ended September 30,
	2019			2018			2019			2018
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)						(Dollars in thousands)
Mortgage	27	$	3,011	36	$	3,310	32	$	4,065	19	$	2,756
Commercial	4	$	1,981	4	$	398	2	$	350	2	$	281
Consumer	43	$	587	23	$	243	61	$	710	11	$	107
Auto							3	$	51	-	$	-

3544

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.

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.

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.

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.

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.

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

3645

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

	March 31, 2019												September 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	$	272,698	$	230,648	$	17,502	$	24,548	$	-	$	-	$	242,849	$	218,501	$	17,084	$	7,264	$	-	$	-
Institutional		68,926		58,976		-		9,950		-		-		76,055		66,405		355		9,295		-		-
Middle market		206,149		149,873		33,394		22,882		-		-		204,882		157,063		27,901		19,918		-		-
Retail		230,965		205,603		3,902		21,460		-		-		224,625		209,961		3,777		10,887		-		-
Floor plan		4,098		2,817		-		1,281		-		-		3,136		3,136		-		-		-		-
Real estate		18,664		18,664		-		-		-		-		17,966		17,966		-		-		-		-
US Loan Program														16,782		16,782		-		-		-		-
		801,500		666,581		54,798		80,121		-		-		786,295		689,814		49,117		47,364		-		-
Other commercial and industrial:
Corporate		148,408		123,288		25,120		-		-		-		160,222		157,655		2,567		-		-		-
Institutional		146,380		146,380		-		-		-		-		153,981		153,981		-		-		-		-
Middle market		92,515		81,395		3,711		7,409		-		-		77,581		69,263		2,706		5,612		-		-
Retail		332,126		322,540		304		9,282		-		-		110,204		109,689		96		419		-		-
Floor plan		48,622		45,463		2,959		200		-		-		38,570		36,440		2,127		3		-		-
US Loan Program														246,776		246,776		-		-		-		-
		768,051		719,066		32,094		16,891		-		-		787,334		773,804		7,496		6,034		-		-
Total		1,569,551		1,385,647		86,892		97,012		-		-		1,573,629		1,463,618		56,613		53,398		-		-

Commercial - acquired loans (under ASC 310-20)
Commercial secured by real estate:
Retail		54		-		-		54		-		-		-		-		-		-		-		-
Floor plan		955		77		-		878		-		-		820		33		-		787		-		-
		1,009		77		-		932		-		-		820		33		-		787		-		-
Other commercial and industrial:
Retail		1,396		1,396		-		-		-		-		1,397		1,397		-		-		-		-
Floor plan														-		-		-		-		-		-
		1,396		1,396		-		-		-		-		1,397		1,397		-		-		-		-
Total		2,405		1,473		-		932		-		-		2,217		1,430		-		787		-		-

37OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	September 30, 2019
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Retail - originated and other loans held for investment
Mortgage:
Traditional		472,039		463,050		-		8,989		-		-
Non-traditional		9,940		8,868		-		1,072		-		-
Loss mitigation program		95,773		87,270		-		8,503		-		-
Home equity secured personal loans		228		228		-		-		-		-
GNMA's buy-back option program		11,403		-		-		11,403		-		-
		589,383		559,416		-		29,967		-		-

Consumer:
Credit cards		27,765		27,173		-		592		-		-
Overdrafts		444		406		-		38		-		-
Unsecured personal lines of credit		1,911		1,834		-		77		-		-
Unsecured personal loans		315,869		314,484		-		1,385		-		-
Cash collateral personal loans		16,369		16,063		-		306		-		-
		362,358		359,960		-		2,398		-		-
Auto and Leasing		1,266,066		1,251,845		-		14,221		-		-
Total		2,217,807		2,171,221		-		46,586		-		-

Retail - acquired loans (accounted for under ASC 310-20)
Consumer:
Credit cards		19,421		19,226		-		195		-		-
Personal loans		2,040		2,030		-		10		-		-
		21,461		21,256		-		205		-		-
Auto		237		194		-		43		-		-
		21,698		21,450		-		248		-		-
	$	3,815,351	$	3,657,719	$	56,613	$	101,019	$	-	$	-

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

March 31, 2019

Risk Ratings

Balance

Special

Outstanding

Pass

Mention

Substandard

Doubtful

Loss

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

Mortgage:

    Traditional

517,773

487,640

-

30,133

-

-
    Non-traditional

13,206

10,589

-

2,617

-

-
    Loss mitigation program

107,257

88,231

-

19,026

-

-
    Home equity secured personal loans

245

236

-

9

-

-
    GNMA's buy-back option program

12,942

-

-

12,942

-

-

651,423

586,696

-

64,727

-

-

Consumer:

    Credit cards

27,926

27,194

-

732

-

-
    Overdrafts

172

137

-

35

-

-
    Unsecured personal lines of credit

1,929

1,900

-

29

-

-
    Unsecured personal loans

304,608

303,582

-

1,026

-

-
    Cash collateral personal loans

15,908

15,616

-

292

-

-

350,543

348,429

-

2,114

-

-
    Auto and Leasing

1,167,482

1,155,319

-

12,163

-

-
      Total

2,169,448

2,090,444

-

79,004

-

-

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

Consumer:

   Credit cards

20,622

20,232

-

390

-

-
    Personal loans

2,146

2,111

-

35

-

-

22,768

22,343

-

425

-

-
    Auto

2,336

2,236

-

100

-

-

25,104

24,579

-

525

-

-

$
3,766,508

$
3,502,143

$
86,892

$
177,473

$
-

$
-

~~OFG BANCORP~~

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

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

-

-

	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		220,925		195,213		3,996		21,716		-		-
Floor plan		4,184		2,890		-		1,294		-		-
Real estate		19,009		19,009		-		-		-		-
US Loan Program		3,189		3,189		-		-		-		-
		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		89,934		86,882		318		2,734		-		-
Floor plan		49,679		47,092		2,541		46		-		-
US Loan Program		220,278		220,278		-		-		-		-
		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		-		-		-		-
Floor plan		-		-		-		-		-		-
		1,510		1,510		-		-		-		-
Total		2,546		1,604		-		942		-		-

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	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	$	-	$	-

4049

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 56 – ALLOWANCE ~~FOR~~FO R LOAN AND LEASE LOSSES

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

	March 31,		December 31,		September 30,		December 31,
	2019		2018		2019		2018
	(In thousands)				(In thousands)
Allowance for loans and lease losses:
Originated and other loans and leases held for investment:
Mortgage	$	16,689	$	19,783	$	8,391	$	19,783
Commercial		32,154		30,326		22,323		30,326
Consumer		16,085		15,571		15,328		15,571
Auto and leasing		29,107		29,508		33,047		29,508
Total allowance for originated and other loans and lease losses		94,035		95,188		79,089		95,188

Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		32		22		20		22
Consumer		1,869		1,905		1,448		1,905
Auto		67		135		22		135
		1,968		2,062		1,490		2,062
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		17,901		15,225		20,458		15,225
Commercial		20,733		20,641		28,647		20,641
Auto		3,499		6,144		2,289		6,144
		42,133		42,010		51,394		42,010
Total allowance for acquired BBVAPR loans and lease losses		44,101		44,072		52,884		44,072
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		15,110		15,382		13,809		15,382
Commercial		9,242		9,585		8,561		9,585
Consumer		-		4		-		4
Total allowance for acquired Eurobank loan and lease losses		24,352		24,971		22,370		24,971
Total allowance for loan and lease losses	$	162,488	$	164,231	$	154,343	$	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.

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

During the quarter ended September 30, 2019, Oriental transferred to held-for-sale $25.9 million of mostly non-performing loans, increasing the provision by $15.9 million.

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 September 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	$	15,361	$	29,234	$	15,831	$	29,526	$	89,952
Charge-offs		(16,299)		(8,402)		(5,046)		(12,331)		(42,078)
Recoveries		493		174		1,260		5,724		7,651
Provision for loan and lease losses		8,836		1,317		3,283		10,128		23,564
Balance at end of period	$	8,391	$	22,323	$	15,328	$	33,047	$	79,089

	Nine-Month Period Ended September 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	$	19,783	$	30,326	$	15,571	$	29,508	$	95,188
Charge-offs		(17,490)		(11,634)		(14,005)		(34,374)		(77,503)
Recoveries		1,096		497		1,850		14,583		18,026
Provision for loan and lease losses		5,002		3,134		11,912		23,330		43,378
Balance at end of period	$	8,391	$	22,323	$	15,328	$	33,047	$	79,089

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended March 31, 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
$
19,783

$
30,326

$
15,571

$
29,508

$
95,188
          Charge-offs

(587)

(1,086)

(4,121)

(11,371)

(17,165)
          Recoveries

287

147

263

3,982

4,679
          (Recapture) provision for loan and lease losses

(2,794)

2,767

4,372

6,988

11,333
      Balance at end of period
$
16,689

$
32,154

$
16,085

$
29,107

$
94,035

	September 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	$	6,816	$	4,849	$	-	$	-	$	11,665
Collectively evaluated for impairment		1,575		17,474		15,328		33,047		67,424
Total ending allowance balance	$	8,391	$	22,323	$	15,328	$	33,047	$	79,089
Loans:
Individually evaluated for impairment	$	71,658	$	58,829	$	-	$	-	$	130,487
Collectively evaluated for impairment		517,725		1,514,800		362,358		1,266,066		3,660,949
Total ending loan balance	$	589,383	$	1,573,629	$	362,358	$	1,266,066	$	3,791,436

March 31, 2019

Mortgage

Commercial

Consumer

Auto and Leasing

Total

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

    Ending allowance balance attributable
      to loans:

        Individually evaluated for impairment
$
11,135

$
10,828

$
-

$
-

$
21,963
        Collectively evaluated for impairment

5,554

21,326

16,085

29,107

72,072
                Total ending allowance balance
$
16,689

$
32,154

$
16,085

$
29,107

$
94,035
Loans:

        Individually evaluated for impairment
$
83,406

$
88,615

$
-

$
-

$
172,021
        Collectively evaluated for impairment

568,017

1,480,936

350,543

1,167,482

3,566,978
                Total ending loan balance
$
651,423

$
1,569,551

$
350,543

$
1,167,482

$
3,738,999

	Quarter Ended September 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	$	19,323	$	31,480	$	16,192	$	27,223	$	94,218
Charge-offs		(1,429)		(3,249)		(4,591)		(9,111)		(18,380)
Recoveries		139		119		278		5,442		5,978
Provision for originated and other loan and lease losses		1,512		4,141		3,836		3,931		13,420
Balance at end of period	$	19,545	$	32,491	$	15,715	$	27,485	$	95,236

	Quarter Ended March 31, 2018										Nine-Month Period Ended September 30, 2018
	Mortgage		Commercial		Consumer		Auto and Leasing		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	$	20,439	$	30,258	$	16,454	$	25,567	$	92,718	$	20,439	$	30,258	$	16,454	$	25,567	$	92,718
Charge-offs		(968)		(1,149)		(4,258)		(8,982)		(15,357)		(3,727)		(6,396)		(13,438)		(31,842)		(55,403)
Recoveries		314		182		240		3,777		4,513		919		528		757		14,498		16,702
(Recapture) provision for originated and other loan and lease losses		(802)		3,883		5,587		6,290		14,958
Provision for originated and other loan and lease losses												1,914		8,101		11,942		19,262		41,219
Balance at end of period	$	18,983	$	33,174	$	18,023	$	26,652	$	96,832	$	19,545	$	32,491	$	15,715	$	27,485	$	95,236

4252

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Allowance for BBVAPR Acquired Loan Losses

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

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

	Quarter Ended March 31, 2019								Quarter Ended September 30, 2019
	Commercial		Consumer		Auto		Total		Commercial		Consumer		Auto		Total
	(In thousands)								(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Balance at beginning of period	$	22	$	1,905	$	135	$	2,062	$	31	$	1,617	$	37	$	1,685
Charge-offs		-		(440)		(85)		(525)		(19)		(270)		(52)		(341)
Recoveries		3		40		90		133		1		203		78		282
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		7		364		(73)		298
(Recapture) provision for acquired BBVAPR loan and lease losses accounted for under ASC 310-20										7		(102)		(41)		(136)
Balance at end of period	$	32	$	1,869	$	67	$	1,968	$	20	$	1,448	$	22	$	1,490

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Nine-Month Period Ended September 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		(99)		(1,143)		(193)		(1,435)
Recoveries		6		321		239		566
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		91		365		(159)		297
Balance at end of period	$	20	$	1,448	$	22	$	1,490

	September 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	$	19	$	-	$	-	$	19
Collectively evaluated for impairment		1		1,448		22		1,471
Total ending allowance balance	$	20	$	1,448	$	22	$	1,490
Loans:
Individually evaluated for impairment	$	678	$	-	$	-	$	678
Collectively evaluated for impairment		1,539		21,461		237		23,237
Total ending loan balance	$	2,217	$	21,461	$	237	$	23,915

	Quarter Ended September 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	$	86	$	2,357	$	283	$	2,726
Charge-offs		(1)		(638)		(72)		(711)
Recoveries		3		95		169		267
(Recapture) provision for acquired loan and lease losses accounted for under ASC 310-20		(71)		326		(187)		68
Balance at end of period	$	17	$	2,140	$	193	$	2,350

4354

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

March 31, 2019

Commercial

Consumer

Auto

Total

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

    Ending allowance balance attributable
      to loans:

        Individually evaluated for impairment
$
24

$
-

$
-

$
24
        Collectively evaluated for impairment

8

1,869

67

1,944
                Total ending allowance balance
$
32

$
1,869

$
67

$
1,968
Loans:

        Individually evaluated for impairment
$
747

$
-

$
-

$
747
         Collectively evaluated for impairment

1,658

22,768

2,336

26,762
                Total ending loan balance
$
2,405

$
22,768

$
2,336

$
27,509

	Nine-Month Period Ended September 30, 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		(6)		(2,080)		(285)		(2,371)
Recoveries		18		243		641		902
(Recapture) provision for acquired loan and lease losses accounted for under ASC 310-20		(37)		752		(758)		(43)
Balance at end of period	$	17	$	2,140	$	193	$	2,350

Quarter Ended March 31, 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

-

(1,022)

(125)

(1,147)
          Recoveries

3

54

228

285
          Provision (recapture) for acquired
            loan and lease losses accounted for
            under ASC 310-20

(8)

402

-
(210)

184
                Balance at end of period
$
37

$
2,659

$
488

$
3,184

~~OFG BANCORP~~

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

	December 31, 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	$	14	$	-	$	-	$	14
Collectively evaluated for impairment		8		1,905		135		2,048
Total ending allowance balance	$	22	$	1,905	$	135	$	2,062
Loans:
Individually evaluated for impairment	$	747	$	-	$	-	$	747
Collectively evaluated for impairment		1,799		23,988		4,435		30,222
Total ending loan balance	$	2,546	$	23,988	$	4,435	$	30,969

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

For loans accounted for under ASC 310-30, 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 and third quarter of 2019, Oriental decided to sell mostly non-performing loans increasing the provision of acquired BBVAPR loans accounted under ASC 310-30 by $20.8 million and $8.7 million, respectively.

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:

Quarter Ended March 31, 2019

Mortgage

Commercial

Consumer

Auto

Total

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

Balance at beginning of period
$
15,225

$
20,641

$
-
$
6,144

42,010
Provision (recapture) for acquired BBVAPR
loans and lease losses accounted for under
ASC 310-30

2,733

850

-

(2,314)

1,269
Allowance de-recognition

(57)

(758)

-

(331)

(1,146)
Balance at end of period
$
17,901

$
20,733

$
-
$
3,499

42,133

	Quarter Ended September 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	$	25,208	$	17,083	$	-	$	3,136	45,427
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30		7,953		11,714		-		(396)	19,271
Allowance de-recognition		(12,703)		(150)		-		(451)	(13,304)
Balance at end of period	$	20,458	$	28,647	$	-	$	2,289	51,394


	Nine-Month Period Ended September 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		18,077		12,485		-		(2,710)	27,852
Allowance de-recogntion		(12,844)		(4,479)		-		(1,145)	(18,468)
Balance at end of period	$	20,458	$	28,647	$	-	$	2,289	51,394

4556

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

											Quarter Ended September 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											$	14,567	$	23,019	$	18	$	6,572	$	44,176
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30												746		61		-		-		807
Allowance de-recognition												(55)		(824)		-		(229)		(1,108)
Balance at end of period											$	15,258	$	22,256	$	18	$	6,343	$	43,875


	Quarter Ended March 31, 2018										Nine-Month Period Ended September 30, 2018
	Mortgage		Commercial		Consumer		Auto		Total		Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)										(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	14,085	$	23,691	$	18	$	7,961	$	45,755	$	14,085	$	23,691	$	18	$	7,961	$	45,755
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30		314		752		-		(887)		179		1,296		2,119		-		(887)		2,528
Allowance de-recognition		(68)		(2,396)		-		(304)		(2,768)		(123)		(3,554)		-		(731)		(4,408)
Balance at end of period	$	14,331	$	22,047	$	18	$	6,770	$	43,166	$	15,258	$	22,256	$	18	$	6,343	$	43,875

Allowance for Acquired Eurobank Loan Losses

The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 were as follows:

Quarter Ended March 31, 2019

Loans Secured by   1-4 Family Residential Properties

Commercial

Consumer

Total

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

      Balance at beginning of period
$
15,382

$
9,585

$
4

$
24,971
         (Recapture) for loan and lease losses, net

(202)

(449)

-

(651)
          Allowance de-recognition

(70)

$
106

$
(4)

32
                Balance at end of period
$
15,110

$
9,242

$
-

$
24,352

Quarter Ended March 31, 2018

Loans secured by 1-4 Family Residential Properties

Commercial

Consumer

Total

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

      Balance at beginning of period
$
15,187

$
9,983

$
4

$
25,174
          Provision (recapture) for acquired Eurobank loan and lease losses, net

179

(40)

-

139
          Allowance de-recognition

48

49

-

97
                Balance at end of period
$
15,414

$
9,992

$
4

$
25,410

4657

OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended September 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	$	17,213	$	8,365	$	-	$	25,578
Provision for loan and lease losses, net		953		118		-		1,071
Allowance de-recognition		(4,357)	$	78	$	-		(4,279)
Balance at end of period	$	13,809	$	8,561	$	-	$	22,370


	Nine-Month Period Ended September 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		3,253		(1,056)		-		2,197
Allowance de-recognition		(4,826)		32		(4)		(4,798)
Balance at end of period	$	13,809	$	8,561	$	-	$	22,370

~~NOTE 6~~ OFG BANCORP— ~~FORECLOSED REAL ESTATE~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Quarter Ended March 31, 2019

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

      Balance at beginning of period
$
9,571

$
14,617

$
9,580

$
33,768
          Decline in value

(168)

(1,157)

(421)

(1,746)
          Additions

2,354

1,055

495

3,904
           Sales

(1,673)

(1,718)

(1,567)

(4,958)
          Other adjustments

(72)

(31)

-

(103)
                Balance at end of period
$
10,012

$
12,766

$
8,087

$
30,865

Quarter Ended March 31, 2018

Originated and other loans and leases held for investment

Acquired BBVAPR loans

Acquired Eurobank loans

Total

(In thousands)

      Balance at beginning of period
$
14,283

$
18,347

11,544

$
44,174
          Decline in value

(488)

(1,036)

(462)

(1,986)
          Additions

1,487

1,649

113

3,249
           Sales

(1,917)

(2,465)

(741)

(5,123)
                Balance at end of period
$
13,365

$
16,495

$
10,454

$
40,314

Quarter Ended September 30, 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
$
15,170

$
9,140

$
4

$
24,314
          Provision (recapture) for acquired Eurobank loan and lease losses, net

231

75

-

306
          Allowance de-recognition

(246)

(93)

-

(339)
                Balance at end of period
$
15,155

$
9,122

$
4

$
24,281

Nine-Month Period Ended September 30, 2018

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
$
15,187

$
9,983

$
4

$
25,174
          Provision (recapture) for acquired Eurobank loan and lease losses, net

1,015

95

-

1,110
          Allowance de-recognition

(1,047)

(956)

-

(2,003)
                Balance at end of period
$
15,155

$
9,122

$
4

$
24,281

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 nine-month periods ended September 30, 2019 and 2018:

Quarter Ended September 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
$
10,953

$
11,240

$
7,316

$
29,509
          Decline in value

(526)

(334)

(233)

(1,093)
          Additions

2,501

1,472

599

4,572
           Sales

(1,718)

(2,644)

(1,674)

(6,036)
                Balance at end of period
$
11,210

$
9,734

$
6,008

$
26,952

Nine-Month Period Ended September 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

(1,116)

(2,123)

(1,177)

(4,416)
           Additions

7,319

4,203

1,346

12,868
          Sales

(4,564)

(6,963)

(3,741)

(15,268)
                Balance at end of period
$
11,210

$
9,734

$
6,008

$
26,952

60
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended September 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
$
12,186

$
17,492

$
10,873

$
40,551
           Decline in value

(359)

(244)

(302)

(905)
          Additions

1,547

2,476

928

4,951
           Sales

(3,080)

(2,680)

(969)

(6,729)
                Balance at end of year
$
10,294

$
17,044

$
10,530

$
37,868

Nine-Month Period Ended September 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

(1,017)

(1,758)

(1,054)

(3,829)
          Additions

4,816

7,401

2,868

15,085
           Sales

(7,788)

(6,946)

(2,828)

(17,562)
                Balance at end of year
$
10,294

$
17,044

$
10,530

$
37,868
NOTE 8 — DERIVATIVES

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

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Derivative assets:

Interest rate swaps designated as cash flow hedges
$
-

$
14
$
-

$
14
Interest rate swaps not designated as hedges

33

126

-

126
Interest rate caps

77

207

13

207

$
110

$
347
$
13

$
347
Derivative liabilities:

Interest rate swaps designated as cash flow hedges
$
329

$
-
$
1,146

$
-
Interest rate swaps not designated as hedges

33

126

-

126
Interest rate caps

77

207

13

207

$
439

$
333
$
1,159

$
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 payments on an amount of forecasted interest expense attributable to the variable index rate corresponding to the swap notional stated
61
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
rate. These swaps are designated as cash flow hedges for the forecasted wholesale borrowing transactions and are properly documented as 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 ~~March 31,~~September 30, 2019:

Notional

Fixed

Variable

Trade

Settlement

Maturity

Notional

Fixed

Variable

Trade

Settlement

Maturity
Type

Amount

Rate

Rate Index

Date

Date

Date

Amount

Rate

Rate Index

Date

Date

Date

(In thousands)

(In thousands)

Interest Rate Swaps

$
33,175

2.4210%

1-Month LIBOR

07/03/13

07/03/13

08/01/23

$
32,367

2.4210%

1-Month LIBOR

07/03/13

07/03/13

08/01/23

$
33,175

$
32,367

An accumulated unrealized loss of ~~$329~~$1.1 ~~thousand~~million and a gain of $14 thousand were recognized in accumulated other comprehensive income related to the valuation of these swaps at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, and the related asset or liability is being reflected in the consolidated statements of financial condition.

At ~~March 31, 2019 and~~ December 31, 2018, interest rate swaps not designated as hedging instruments that were offered to clients represented an asset of ~~$33~~$126 thousand ~~and $126 thousand, respectively,~~ and were included as part of derivative assets in the consolidated statements of financial position. The credit risk to these clients stemming from these derivatives, if any, is not material. At ~~March 31, 2019 and~~ December 31, 2018, interest rate swaps not designated as hedging instruments that are the mirror-images of the derivatives offered to clients represented a liability of ~~$33~~$126 thousand ~~and $126 thousand, respectively,~~ and were included as part of derivative liabilities in the consolidated statements of financial condition.
48
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
~~The following table shows a summary of these~~ No interest rate swaps ~~not designated as hedging instruments and their terms~~were offered to clients at ~~March 31, 2019:~~September 30, 2019.

Notional

Fixed

Variable

Settlement

Maturity
Type

Amount

Rate

Rate Index

Date

Date

(In thousands)

Interest Rate Swaps - Derivatives Offered to Clients

$
12,500

5.5050%

1-Month LIBOR

04/11/09

04/11/19

$
12,500

Interest Rate Swaps - Mirror Image Derivatives

$
12,500

5.5050%

1-Month LIBOR

04/11/09

04/11/19

$
12,500

Interest Rate Caps

Oriental has entered into interest rate cap transactions with various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. In these cases, Oriental simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting, and therefore, they are marked to market through earnings. As of ~~March 31,~~September 30, 2019 and December 31, 2018, the outstanding total notional amount of interest rate caps was $~~42.4~~41.8 million and $150.9 million, respectively. At ~~March 31,~~September 30, 2019 and December 31, 2018, the interest rate caps sold to clients represented a liability of ~~$77~~$13 thousand and $207 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition. At ~~March 31,~~September 30, 2019 and December 31, 2018, the interest rate caps purchased as mirror-images represented an asset of ~~$77~~$13 thousand and $207 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial condition.

NOTE 89 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS

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

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Loans, excluding acquired loans
$
29,373

$
30,409
$
28,890

$
30,409
Investments

3,779

3,845

1,580

3,845

$
33,152

$
34,254
$
30,470

$
34,254

Other assets at September 30, 2019 and December 31, 2018 consist of the following:
4962
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

O~~ther assets at March 31, 2019 and December 31, 2018 consist of the following:~~

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Prepaid expenses
$
7,391

$
9,788
$
14,083

$
9,788
Other repossessed assets

3,574

2,986

3,537

2,986
Core deposit and customer relationship intangibles

3,076

3,369

2,491

3,369
Tax credits

277

2,277

277

2,277
Investment in Statutory Trust

1,083

1,083

1,083

1,083
Accounts receivable and other assets

35,482

37,842

35,140

37,842

$
50,883

$
57,345
$
56,611

$
57,345

Prepaid expenses amounting to ~~$7.4~~$14.1 million and $9.8 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively, include prepaid municipal, property and income taxes aggregating to ~~$4.0~~$7.4 million and $5.5 million, respectively.

Other repossessed assets totaled ~~$3.6~~$3.5 million and $3.0 million at ~~March 31,~~September 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 ~~March 31,~~September 30, 2019 and December 31, 2018 this core deposit intangible amounted to ~~$2.3~~$1.9 million and $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 ~~March 31,~~September 30, 2019 and December 31, 2018, this customer relationship intangible amounted to ~~$796~~$612 thousand and $888 thousand, respectively.

At ~~March 31,~~September 30, 2019 and December 31, 2018, tax credits for Oriental totaled $277 thousand and $2.3 million, respectively. These tax credits do not have an expiration date.

NOTE 910— DEPOSITS AND RELATED INTEREST

Total deposits, including related accrued interest payable, as of ~~March 31,~~September 30, 2019 and December 31, 2018 consist of the following:

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Non-interest bearing demand deposits
$
1,092,488

$
1,105,324
$
1,100,235

$
1,105,324
Interest-bearing savings and demand deposits

2,356,868

2,274,423

2,334,591

2,274,423
Retail certificates of deposit

810,670

805,712

933,308

805,712
Institutional certificates of deposit

185,849

197,559

221,562

197,559
Total core deposits

4,445,875

4,383,018

4,589,696

4,383,018
Brokered deposits

451,226

525,097

288,362

525,097
Total deposits
$
4,897,101

$
4,908,115
$
4,878,058

$
4,908,115

5063
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Brokered deposits include ~~$430.2~~ $269.3 million in certificates of deposits and ~~$21.0~~$19.1 million in money market accounts at ~~March 31,~~September 30, 2019, and $500.8 million in certificates of deposits and $24.3 million in money market accounts at December 31, 2018. As part of the sale $672.1 million available-for-sale mortgage-backed securities during the nine-month period ended September 30, 2019, Oriental reduced $62.8 million brokered deposits.

The weighted average interest rate of Oriental’s deposits was ~~0.74~~0.84 % and 0.67%, respectively, at ~~March 31,~~September 30, 2019 and December 31, 2018. Interest expense for the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 was as follows:

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018
2019

2018

2019

2018

(In thousands)
(In thousands)
Demand and savings deposits
$
3,411

$
2,812
$
3,949

$
3,157

$
11,308

$
8,924
Certificates of deposit

5,638

4,486

6,605

5,448

18,286

14,630

$
9,049

$
7,298
$
10,554

$
8,605

$
29,594

$
23,554

At ~~March 31,~~September 30, 2019 and December 31, 2018, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to ~~$338.5~~$410.5 million and $346.0 million, respectively. Such amounts include public funds time deposits from various Puerto Rico government municipalities, agencies and corporations of ~~$14.1~~$5.0 million and $19.6 million at a weighted average rate of ~~127.0~~150.0 % and 116.4% at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

At ~~March 31,~~September 30, 2019 and December 31, 2018, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to ~~$228.8~~$250.1 million and $207.4 million, respectively. These public funds were collateralized with commercial loans and securities amounting to ~~$278.2~~$295.0 million and $281.2 million at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

Excluding accrued interest of approximately ~~$2.2~~$1.8 million, the scheduled maturities of certificates of deposit at ~~March 31,~~September 30, 2019 and December 31, 2018 are as follows:

March 31,

December 31,
September 30,

December 31,

2019

2018

2019

2018

(In thousands)
(In thousands)
Within one year:

Three (3) months or less
$
275,976

$
305,088
$
221,701

$
305,088
Over 3 months through 1 year

469,477

545,363

530,791

545,363

745,453

850,451

752,492

850,451
Over 1 through 2 years

508,568

484,197

504,671

484,197
Over 2 through 3 years

94,306

89,340

89,787

89,340
Over 3 through 4 years

33,099

34,018

40,926

34,018
Over 4 through 5 years

43,117

42,998

34,496

42,998

$
1,424,543

$
1,501,004
$
1,422,372

$
1,501,004

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

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to ~~$578~~$1.2 ~~thousand~~million and $1.1 million as of ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.
5164
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1011— BORROWINGS AND RELATED INTEREST

     Securities Sold under Agreements to Repurchase

At ~~March 31,~~September 30, 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.

The following table shows Oriental’s repurchase agreements, excluding accrued interest in the amount of ~~$609~~$261 thousand and $785 thousand at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively:

March 31,

December 31,

2019

2018

(In thousands)
Short-term fixed-rate repurchase agreements, interest ranging from 2.45% to 2.95% (December 31, 2018 2.45% to 2.95%)
$
190,957

$
214,723
Long-term fixed-rate repurchase agreements, interest ranging from 1.72% to 2.86% (December 31, 2018; 1.72% to 2.86%)

240,000

240,000
      Total assets sold under agreements to repurchase
$
430,957

$
454,723

September 30,

December 31,

2019

2018

(In thousands)
Short-term fixed-rate repurchase agreements (December 31, 2018; 2.45% to 2.95%)
$
-

$
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
$
190,000

$
454,723

Repurchase agreements mature as follows:

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Less than 90 days
$
190,957

$
214,723
$
-

$
214,723
Over 90-days

240,000

240,000

190,000

240,000
Total
$
430,957

$
454,723
$
190,000

$
454,723

During the nine-month period ended September 30, 2019, Oriental sold $672.1 million available-for-sale mortgage-backed securities. As a result of such sales, Oriental 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. Also, $73.7 million of repurchase agreements matured and were not renewed.This sale provided opportunity to further reduce wholesale funding outstanding balances.
The following securities were sold under agreements to repurchase:

March 31, 2019

Amortized

Approximate

Weighted

Cost of

Fair Value

Average

Underlying

Balance of

of Underlying

Interest Rate
Underlying Securities
Securities

Borrowing

Securities

of Security

(Dollars in thousands)
FNMA and FHLMC Certificates
$
464,669

$
430,957

$
461,092

3.03%
      Total
$
464,669

$
430,957

$
461,092

3.03%

December 31, 2018

Amortized

Approximate

Weighted

Cost of

Fair Value

Average

Underlying

Balance of

of Underlying

Interest Rate
Underlying Securities
Securities

Borrowing

Securities

of Security

(Dollars in thousands)
FNMA and FHLMC Certificates
$
496,814

$
454,723

$
487,181

3.01%
      Total
$
496,814

$
454,723

$
487,181

3.01%
5265
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 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
$
206,567

$
190,000

$
205,662

2.98%
      Total
$
206,567

$
190,000

$
205,662

2.98%

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 ~~March 31,~~September 30, 2019 and December 31, 2018, these advances were secured by mortgage and commercial loans amounting to ~~$871.2~~$823.1 million and $847.3 million, respectively. Also, at ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental had an additional borrowing capacity with the FHLB-NY of ~~$790.3~~$744.2 million and $762.0 million, respectively. At ~~March 31,~~September 30, 2019 and December 31, 2018, the weighted average remaining maturity of FHLB’s advances was ~~28.0~~24.4 months and 26.6 months, respectively. The original terms of these advances range between one 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 ~~March 31,~~September 30, 2019.

The following table shows a summary of the advances and their terms, excluding accrued interest in the amount of ~~$192~~$170 thousand and $176 thousand, at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively:

March 31

December 31

2019

2018

(In thousands)
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.67% (December 31, 2018 - 2.61%)

$
33,175

$
33,572
Long-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.90% (December 31, 2018 - 2.89%)

47,744

43,872

$
80,919

$
77,444

September 30,

December 31,

2019

2018

(In thousands)
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.28% (December 31, 2018 - 2.61%)

$
32,367

$
33,572
Long-term fixed-rate advances from FHLB, with a weighted average interest rate of 2.97% (December 31, 2018 - 2.89%)

46,515

43,872

$
78,882

$
77,444

Advances from FHLB mature as follows:

March 31

2019

(In thousands)
Under 90 days

$
33,175
Over one to three years

8,780
Over three to five years

34,514
Over five years

4,450

$
80,919
66
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

September 30,

2019

(In thousands)
Under 90 days

$
32,367
Over one to three years

8,605
Over three to five years

33,520
Over five years

4,390

$
78,882

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 ~~March 31,~~September 30, 2019 and December 31, 2018.

53
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
NOTE 1112 – 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 ~~March 31,~~September 30, 2019 and December 31, 2018:

March 31, 2019
September 30, 2019
September 30, 2019

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts

Net Amount of

Gross Amounts

Net Amount of

Offset in the

Assets Presented

Offset in the

Assets Presented

Gross Amount

Statement of

in Statement

Cash

Gross Amount

Statement of

in Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Net

of Recognized

Financial

of Financial

Financial

Collateral

Net

Assets

Condition

Condition

Instruments

Received

Amount

Assets

Condition

Condition

Instruments

Received

Amount

(In thousands)

(In thousands)
Derivatives

$
110

$
-

$
110

$
2,076

$
-

$
(1,966)

$
13

$
-

$
13

$
-

$
-

$
13

December 31, 2018
December 31, 2018
December 31, 2018

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts Not Offset in the Statement of Financial Condition

Gross Amounts

Net amount of

Gross Amounts

Net amount of

Offset in the

Assets Presented

Offset in the

Assets Presented

Gross Amount

Statement of

in Statement

Cash

Gross Amount

Statement of

in Statement

Cash

of Recognized

Financial

of Financial

Financial

Collateral

Net

of Recognized

Financial

of Financial

Financial

Collateral

Net

Assets

Condition

Condition

Instruments

Received

Amount

Assets

Condition

Condition

Instruments

Received

Amount

(In thousands)

(In thousands)
Derivatives

$
347

$
-

$
347

$
2,037

$
-

$
(1,690)

$
347

$
-

$
347

$
2,037

$
-

$
(1,690)
5467
September 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

$
1,159

$
-

$
1,159

$
-

$
-

$
1,159
Securities sold under agreements to repurchase

190,000

-

190,000

205,662

-

(15,662)
Total

$
191,159

$
-

$
191,159

$
205,662

$
-

$
(14,503)

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)

~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
March 31, 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

$
439

$
-

$
439

$
-

$
1,980

$
(1,541)
Securities sold under agreements to repurchase

430,957

-

430,957

461,092

-

(30,135)
Total

$
431,396

$
-

$
431,396

$
461,092

$
1,980

$
(31,676)

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)

55
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
NOTE 1213 — 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 ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental’s net deferred tax asset amounted to ~~$112.7~~$112.6 million and $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
69
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 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 ~~March 31,~~September 30, 2019 and December 31, 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.

Oriental maintained an effective tax rate lower than statutory rate for the ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 of ~~33.0~~30.5 % and ~~32.0~~33.7%, 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 ~~March 31,~~September 30, 2019 and December 31, 2018, unrecognized tax benefits amounted at ~~$891~~$478 thousand and $875 thousand, respectively. Oriental had accrued ~~$17~~$42 thousand at ~~March 31,~~September 30, 2019 (December 31, 2018 - $81 thousand) for the payment of interest and penalties relating to unrecognized tax benefits. In addition, $438 thousand were released from the liabilities due to the expiration of the statute of limitations.

Income tax expense for the quarters ended ~~March 31,~~September 30, 2019 and 2018, was ~~$11.6~~$1.0 million and ~~$8.0~~$12.3 million, ~~respectively~~respectively. Income tax expense for the nine-month periods ended September 30, 2019 and 2018 was $23.5 million and $29.9 million, respectively.

56
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
NOTE 1314 — 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 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 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 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 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”).

70
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of ~~March 31,~~September 30, 2019 and December 31, 2018, OFG Bancorp and the Bank met all capital adequacy requirements to which they are subject. As of ~~March 31,~~September 30, 2019 and December 31, 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.
OFG Bancorp’s and the Bank’s actual capital amounts and ratios as of September 30, 2019 and December 31, 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 September 30, 2019

Total capital to risk-weighted assets
$
1,035,910

21.71%

$
381,693

8.00%

$
477,117

10.00%
Tier 1 capital to risk-weighted assets
$
974,962

20.43%

$
286,270

6.00%

$
381,693

8.00%
Common equity tier 1 capital to risk-weighted assets
$
858,092

17.98%

$
214,702

4.50%

$
310,126

6.50%
Tier 1 capital to average total assets
$
974,962

15.41%

$
253,010

4.00%

$
316,262

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%
5771
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

Minimum Capital

Minimum to be Well

Actual

Requirement

Capitalized

Amount

Ratio

Amount

Ratio

Amount

Ratio

Minimum Capital

Minimum to be Well

(Dollars in thousands)
Actual

Requirement

Capitalized
OFG Bancorp Ratios

As of March 31, 2019

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)
Bank Ratios

As of September 30, 2019

Total capital to risk-weighted assets
$
1,012,112

20.77%

$
389,824

8.00%

$
487,281

10.00%
$
990,903

20.83%

$
380,599

8.00%

$
475,749

10.00%
Tier 1 capital to risk-weighted assets
$
949,794

19.49%

$
292,368

6.00%

$
389,824

8.00%
$
930,216

19.55%

$
285,449

6.00%

$
380,599

8.00%
Common equity tier 1 capital to risk-weighted assets
$
832,924

17.09%

$
219,276

4.50%

$
316,732

6.50%
$
930,216

19.55%

$
214,087

4.50%

$
309,237

6.50%
Tier 1 capital to average total assets
$
949,794

14.64%

$
259,456

4.00%

$
324,320

5.00%
$
930,216

14.83%

$
250,964

4.00%

$
313,705

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%
$
949,596

19.68%

$
385,992

8.00%

$
482,490

10.00%
Tier 1 capital to risk-weighted assets
$
928,577

19.20%

$
290,233

6.00%

$
386,977

8.00%
$
887,918

18.40%

$
289,494

6.00%

$
385,992

8.00%
Common equity tier 1 capital to risk-weighted assets
$
811,707

16.78%

$
217,675

4.50%

$
314,419

6.50%
$
887,918

18.40%

$
217,120

4.50%

$
313,618

6.50%
Tier 1 capital to average total assets
$
928,577

14.22%

$
261,125

4.00%

$
326,406

5.00%
$
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)
Bank Ratios

As of March 31, 2019

Total capital to risk-weighted assets
$
966,848

19.91%

$
388,573

8.00%

$
485,716

10.00%
Tier 1 capital to risk-weighted assets
$
904,813

18.63%

$
291,429

6.00%

$
388,573

8.00%
Common equity tier 1 capital to risk-weighted assets
$
904,813

18.63%

$
218,572

4.50%

$
315,715

6.50%
Tier 1 capital to average total assets
$
904,813

14.02%

$
258,183

4.00%

$
322,728

5.00%
As of December 31, 2018

Total capital to risk-weighted assets
$
949,596

19.68%

$
385,992

8.00%

$
482,490

10.00%
Tier 1 capital to risk-weighted assets
$
887,918

18.40%

$
289,494

6.00%

$
385,992

8.00%
Common equity tier 1 capital to risk-weighted assets
$
887,918

18.40%

$
217,120

4.50%

$
313,618

6.50%
Tier 1 capital to average total assets
$
887,918

13.68%

$
259,547

4.00%

$
324,434

5.00%
58
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
NOTE 1415 – STOCKHOLDERS’ EQUITY

    Preferred Stock and Common Stock

On October 22, 2018, Oriental completed the conversion of all of its 84,000 shares of Series C preferred stock into common stock. Each share of Series C preferred stock was converted into 86.4225 shares of common stock. Upon conversion, the Series C preferred stock is no longer outstanding and all rights with respect to the Series C preferred stock have ceased and terminated, except the right to receive the number of whole shares of common stock issuable upon conversion of the Series C preferred stock and any required cash-in-lieu of fractional shares. At both ~~March 31,~~September 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 ~~March 31,~~September 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 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 ~~March 31,~~September 30, 2019 and December 31, 2018, the Bank’s legal surplus amounted to ~~$92.6~~$95.8 million and $90.2 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.

Treasury Stock

72
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018, Oriental did not repurchase any shares under the program.

At ~~March 31,~~September 30, 2019 the number of shares that may yet be purchased under the $70 million program is estimated at ~~390,644~~353,007, and was calculated by dividing the remaining balance of $7.7 million by ~~$19.79~~$21.90 (closing price of Oriental's common stock at ~~March 31,~~September 30, 2019).

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

Quarter Ended March 31,

Nine-Month Period Ended September 30,

2019

2018

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
8,591,310

$
103,633

8,678,427

$
104,502
$
8,591,310

$
103,633

8,678,427

$
104,502
Common shares used upon lapse of restricted stock units and options
(34,507)

(437)

(20,900)

(360)

(53,132)

(697)

(58,424)

(796)
End of period
8,556,803

$
103,196

8,657,527

$
104,142
$
8,538,178

$
102,936

8,620,003

$
103,706
5973
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1516 - ACCUMULATED OTHER COMPREHENSIVE INCOME

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

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Unrealized loss on securities available-for-sale which are not
other-than-temporarily impaired
$
(9,280)

$
(12,654)
$
(1,865)

$
(12,654)
Income tax effect of unrealized loss on securities available-for-sale

1,439

1,682

123

1,682
Net unrealized gain on securities available-for-sale which are not
other-than-temporarily impaired

(7,841)

(10,972)

(1,742)

(10,972)
Unrealized (loss) gain on cash flow hedges

(329)

14

(1,146)

14
Income tax effect of unrealized (loss) gain on cash flow hedges

123

(5)

430

(5)
Net unrealized (loss) gain on cash flow hedges

(206)

9

(716)

9
Accumulated other comprehensive (loss), net of income taxes
$
(8,047)

$
(10,963)
$
(2,458)

$
(10,963)

Unrealized losses on available-for-sale securities includes ~~$14.4~~$12.0 million, asnet of tax effect of the adoption of ASU No. 2017-12 ~~and~~from 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 nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

6074
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended September 30,

Quarter Ended March 31, 2019
2019

2018

Net unrealized

Net unrealized

Accumulated
Net unrealized

Net unrealized

Accumulated

Net unrealized

Net unrealized

Accumulated

gains on

loss on

other
gains on

loss on

other

gains on

loss on

other

securities

cash flow

comprehensive
securities

cash flow

comprehensive

securities

cash flow

comprehensive

available-for-sale

hedges

(loss) income
available-for-sale

hedges

(loss) income

available-for-sale

hedges

(loss) income

(In thousands)
(In thousands)
Beginning balance
$
(10,972)

$
9

$
(10,963)
$
(3,087)

$
(599)

$
(3,686)

$
(15,518)

$
256

$
(15,262)
Other comprehensive income (loss)

Transfer of securities held-to-maturity to available-for-sale

(12,041)

-

(12,041)
Other comprehensive income (loss) before reclassifications

15,189

(432)

14,757

(2,143)

(666)

(2,809)

(5,607)

(380)

(5,987)
Amounts reclassified out of accumulated other comprehensive (loss) income

(17)

217

200

3,488

549

4,037

(63)

517

454

3,131

(215)

2,916
Other comprehensive income (loss)

1,345

(117)

1,228

(5,670)

137

(5,533)
Ending balance
$
(7,841)

$
(206)

$
(8,047)
$
(1,742)

$
(716)

$
(2,458)

$
(21,188)

$
393

$
(20,795)

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

Net unrealized

Net unrealized

Accumulated
2019

2018

gains on

loss on

other
Net unrealized

Net unrealized

Accumulated

Net unrealized

Net unrealized

Accumulated

securities

cash flow

comprehensive
gains on

loss on

other

gains on

loss on

other

available-for-sale

hedges

(loss) income
securities

cash flow

comprehensive

securities

cash flow

comprehensive

(In thousands)
available-for-sale

hedges

(loss) income

available-for-sale

hedges

(loss) income

(In thousands)
Beginning balance
$
(2,638)

$
(311)

$
(2,949)
$
(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

(9,576)

26

(9,550)

13,034

(2,050)

10,984

(18,361)

(635)

(18,996)
Amounts reclassified out of accumulated other comprehensive (loss) income

(60)

374

314

8,237

1,325

9,562

(189)

1,339

1,150
Other comprehensive (loss) income

(9,636)

400

(9,236)
Other comprehensive income (loss)

9,230

(725)

8,505

(18,550)

704

(17,846)
Ending balance
$
(12,274)

$
89

$
(12,185)
$
(1,742)

$
(716)

$
(2,458)

$
(21,188)

$
393

$
(20,795)

The following table presents reclassifications out of accumulated other comprehensive income for the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

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


Quarter Ended March 31,

2019

2018

(In thousands)

Cash flow hedges:

Interest-rate contracts
$
217

$
374

Available-for-sale securities:

Net interest expense
Residual tax effect from OIB's change in applicable tax rate

-

5
Net impairment losses recognized in earnings
Tax effect from changes in tax rates

(17)

(65)
Income tax expense

$
200

$
314

75
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 September 30,

2019

2018

(In thousands)

Cash flow hedges:

Interest-rate contracts
$
549

$
517
Net interest expense
Available-for-sale securities:

Gain on sale of investments

3,498

-
Net gain on sale of securities
Tax effect from changes in tax rates

(10)

(63)
Income tax expense

$
4,037

$
454

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


Nine-Month Period Ended September 30,

2019

2018

(In thousands)

Cash flow hedges:

Interest-rate contracts
$
1,325

$
1,339
Net interest expense
Available-for-sale securities:

Gain on sale of investments

8,274

-
Net gain on sale of securities
Residual tax effect from OIB's change in applicable tax rate

-

5
Income tax expense
Tax effect from changes in tax rates

(38)

(194)
Income tax expense

$
9,561

$
1,150

6176
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 1617 – EARNINGS PER COMMON SHARE

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

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018
2019

2018

2019

2018

(In thousands, except per share data)
(In thousands, except per share data)
Net income
$
23,470

$
16,917
$
7,383

$
23,100

$
54,832

$
59,666
Less: Dividends on preferred stock

Non-convertible preferred stock (Series A, B, and D)

(1,628)

(1,627)

(1,628)

(1,628)

(4,884)

(4,883)
Convertible preferred stock (Series C)

-

(1,838)

-

(1,838)

-

(5,513)
Income available to common shareholders
$
21,842

$
13,452
$
5,755

$
19,634

$
49,948

$
49,270
Effect of assumed conversion of the convertible preferred stock

-

1,838

-

1,838

-

5,513
Income available to common shareholders assuming conversion
$
21,842

$
15,290
$
5,755

$
21,472

$
49,948

$
54,783

Weighted average common shares and share equivalents:

Average common shares outstanding

51,305

43,955

51,345

43,996

51,327

43,975
Effect of dilutive securities:

Average potential common shares-options

321

28

427

209

368

110
Average potential common shares-assuming conversion of convertible preferred stock

-

7,138

-

7,259

-

7,259
Total weighted average common shares outstanding and equivalents

51,626

51,121

51,772

51,464

51,695

51,344
Earnings per common share - basic
$
0.43

$
0.31
$
0.11

$
0.45

$
0.97

$
1.12
Earnings per common share - diluted
$
0.42

$
0.30
$
0.11

$
0.42

$
0.97

$
1.07

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 nine-month period ended ~~March 31,~~September 30, 2018 on the convertible preferred stock were added back as income available to common shareholders.

For the ~~quarters~~quarter and nine-month periods ended ~~March 31,~~September 30, 2019, Oriental did not have weighted-average stock options with an anti-dilutive effect on earnings per share. For the quarter and nine-month periods ended September 30, 2018, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to ~~28,414~~307,925 and ~~859,322~~435,950, respectively.

77
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 1718 – GUARANTEES

At ~~March 31,~~September 30, 2019 and December 31, 2018, the unamortized balance of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of ~~$12.6~~$12.9 million and $23.9 million, respectively.

Oriental has a liability for residential mortgage loans sold subject to credit recourse pursuant to FNMA’s residential mortgage loan sales and securitization programs. At ~~March 31,~~September 30, 2019 and December 31, 2018, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was ~~$5.3~~$5.0 million and $5.4 million, respectively.

The following table shows the changes in Oriental’s liability for estimated losses from these credit recourse agreements, included in the consolidated statements of financial condition during the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018.

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

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018
2019

2018

2019

2018

(In thousands)
Balance at beginning of period
$
346

$
358
$
225

$
264

$
346

$
358
Net (charge-offs/terminations) recoveries

(132)

(94)

20

(60)

(101)

(154)
Balance at end of period
$
214

$
264
$
245

$
204

$
245

$
204

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 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 ~~quarters~~quarter and nine-month period ended ~~March 31,~~September 30, 2019, ~~and 2018,~~ Oriental did not repurchase any mortgage loans subject to the credit recourse provision. During the quarter and nine-month period ended September 30, 2018, Oriental repurchased approximately $234 thousand and $569 thousand, respectively, of unpaid principal balance in mortgage loans subject to the credit recourse provisions. 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 ~~March 31,~~September 30, 2019, Oriental’s liability for estimated credit losses related to loans sold with credit recourse amounted to ~~$214~~$245 thousand (December 31, 2018– $346 thousand).

When Oriental sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. Oriental's mortgage operations division groups conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA or other private investors for cash. As required under such mortgage backed securities programs, quality review procedures are performed by Oriental to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, Oriental may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the ~~quarter~~quarters ended ~~March 31,~~September 30, 2019, Oriental repurchased ~~$1.9~~$528 thousand (September 30, 2018 – $1.6 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above. During the nine-month periods ended September 30, 2019, Oriental repurchased $10.5million (~~March 31,~~September 30, 2018 – ~~$2.3~~ $5.9million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above.

78
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During the quarters ended ~~March 31,~~September 30, 2019 and 2018, Oriental recognized ~~$116~~$20 thousand and ~~$100~~$30 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and ~~$16~~$19 thousand and $1$41 thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties. During the nine-month periods ended September 30, 2019 and 2018, Oriental recognized $48 thousand and $406 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $60 thousand and $71 thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties.

Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including the FHLMC, require Oriental to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At ~~March 31,~~September 30, 2019, Oriental serviced ~~$900.0~~$900.4 million (December 31, 2018 - $895.6 million) in mortgage loans for third-parties. Oriental generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, Oriental must absorb the cost of the funds it advances during the time the advance is outstanding. Oriental must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and Oriental would not receive any future servicing income with respect to that loan. At ~~March 31,~~September 30, 2019, the outstanding balance of funds advanced by Oriental under such mortgage loan servicing agreements was approximately ~~$647~~$616 thousand (December 31, 2018 - $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.
63
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
NOTE 1819— 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 ~~March 31,~~September 30, 2019 and December 31, 2018 were as follows:

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Commitments to extend credit
$
588,159

$
541,423
$
610,516

$
541,423
Commercial letters of credit

121

340

459

340

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

79
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At ~~March 31,~~September 30, 2019 and December 31, 2018, commitments to extend credit consisted mainly of undisbursed available amounts on commercial lines of credit, construction loans, and revolving credit card arrangements. Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of these unused commitments does not necessarily represent future cash requirements. These lines of credit had a reserve of ~~$650~~$505 thousand and $627 thousand, at ~~March 31,~~September 30, 2019 and December 31, 2018, respectively.

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

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

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands)
(In thousands)
Standby letters of credit and financial guarantees
$
12,595

$
23,889
$
12,884

$
23,889
Loans sold with recourse

5,341

5,414

4,962

5,414

64
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
Standby letters of credit and financial guarantees are written conditional commitments issued by Oriental to guarantee the payment and/or performance of a customer to a third party (“beneficiary”). If the customer fails to comply with the agreement, the beneficiary may draw on the standby letter of credit or financial guarantee as a remedy. The amount of credit risk involved in issuing letters of credit in the event of 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.

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 1920— OPERATING LEASES

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

80
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Lessee Accounting

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

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

Oriental’s leases do not contain residual value guarantees or material variable lease payments. All leases were classified as operating leases.
65
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

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

Operating Lease Cost

Quarter Ended

Quarter Ended September 30, 2019

Nine-Month Period Ended September 30, 2019

March 31, 2019
Statement of Operations Classification

Statement of Operations Classification

(In thousands)

(In thousands)

Lease costs
$
1,529
Occupancy and equipment
$
1,608

$
4,949
Occupancy and equipment
Variable lease costs

684
Occupancy and equipment

350

1,699
Occupancy and equipment
Short-term lease cost

156
Occupancy and equipment

81

104
Occupancy and equipment
Lease income

(155)
Occupancy and equipment

(135)

(431)
Occupancy and equipment
Total lease cost
$
2,214

$
1,904

$
6,321

Rent expenses for the quarter and nine-month period ended ~~March 31,~~September 30, 2018, prior to adoption of ASU 2016-02 (Topic 842), were ~~$2.2~~$2.0 ~~million.~~million and $7.4 million, respectively, included in the "occupancy and equipment" caption in the unaudited consolidated statements of operations.
~~Operating Lease Assets and Liabilities~~

Quarter Ended March 31, 2019



Statement of Financial Condition Classification

(In thousands)

Right-of-use assets

$
20,860

Operating lease right-of-use assets
Lease Liabilities

$
22,618

Operating leases liabilities
~~March 31, 2019~~
~~(In thousands)~~
~~Weighted-average remaining lease term~~
~~4.4 years~~
~~Weighted-average discount rate~~
~~8.0%~~
~~Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2019 were as follows:~~
6681
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Operating Lease Assets and Liabilities

Minimum Rent
Year Ending December 31,
(In thousands)
2019
$
4,653
2020

5,636
2021

4,678
2022

3,824
2023

2,961
Thereafter

8,929
Total lease payments
$
30,681
Less imputed interest

8,063
Present value of lease liabilities
$
22,618

September 30 2019



Statement of Financial Condition Classification

(In thousands)

Right-of-use assets

$
19,318

Operating lease right-of-use assets
Lease Liabilities

$
21,081

Operating leases liabilities
September 30, 2019
(In thousands)
Weighted-average remaining lease term
6.2 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 September 30, 2019 were as follows:

Minimum Rent
Year Ending December 31,
(In thousands)
2019
$
1,596
2020

5,716
2021

4,717
2022

3,843
2023

2,991
Thereafter

8,954
Total lease payments
$
27,817
Less imputed interest

6,736
Present value of lease liabilities
$
21,081

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
6782
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 2021 - 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 valuations obtained from an independent pricing provider, ICE Data Pricing (formerly known as IDC). ICE is a well-recognized pricing 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 ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental did not have investment securities classified as Level 3.

Derivative instruments

The fair value of the interest rate swaps is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, the level of interest rates, as well as the expectations for rates in the future. The fair value of most of these derivative instruments is based on observable market parameters, which include discounting the instruments’ cash flows using the U.S. dollar LIBOR-based discount rates, and also applying yield curves that account for the industry sector and the credit rating of the counterparty and/or Oriental. Certain other derivative instruments with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on their valuation methodology, derivative instruments are classified as Level 2 or Level 3.

Servicing assets

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

Impaired Loans

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

Foreclosed real estate

6883
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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:

March 31, 2019
September 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
$
-

$
1,239,469

$
-

$
1,239,469
$
-

$
519,095

$
-

$
519,095
Trading securities

-

381

-

381

-

41

-

41
Money market investments

7,665

-

-

7,665

8,035

-

-

8,035
Derivative assets

-

110

-

110

-

13

-

13
Servicing assets

-

-

10,623

10,623

-

-

10,125

10,125
Derivative liabilities

-

(439)

-

(439)

-

(1,159)

-

(1,159)

$
7,665

$
1,239,521

$
10,623

$
1,257,809
$
8,035

$
517,990

$
10,125

$
536,150
Non-recurring fair value measurements:

Impaired commercial loans
$
-

$
-

$
89,362

$
89,362
$
-

$
-

$
59,507

$
59,507
Foreclosed real estate

-

-

30,865

30,865

-

-

26,952

26,952
Other repossessed assets

-

-

3,574

3,574

-

-

3,537

3,537

$
-

$
-

$
123,801

$
123,801
$
-

$
-

$
89,996

$
89,996


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 ended March 31, 2019 and 2018:
6984
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters and nine-month periods ended September 30, 2019 and 2018:
Level 3 Instruments Only
Servicing Assets
Servicing Assets

(In thousands)
(In thousands)

Quarter Ended March 31,
Quarter Ended September 30,

2019

2018
2019

2018
Balance at beginning of period
$
10,716

$
9,821
$
10,134

$
10,829
New instruments acquired

302

352

352

417
Principal repayments

(201)

(199)

(243)

(184)
Changes in fair value of servicing assets

(194)

559

(118)

(196)
Balance at end of period
$
10,623

$
10,533
$
10,125

$
10,866

Level 3 Instruments Only
Servicing Assets

(In thousands)

Nine-Month Period Ended September 30,

2019

2018

(In thousands)
Balance at beginning of period
$
10,716

$
9,821
New instruments acquired

860

1,158
Principal repayments

(694)

(593)
Changes in fair value of servicing assets

(757)

480
Balance at end of period
$
10,125

$
10,866

During the quarters and nine-month periods ended ~~March 31,~~September 30, 2019, and 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 ~~March 31,~~September 30, 2019:

March 31, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

(In thousands)

Servicing assets

$
10,623

Cash flow valuation

Constant prepayment rate

4.38% -8.96%

Discount rate

10.00% - 12.00%
Collateral dependent
    impaired loans

$
44,717

Fair value of property
    or collateral

Appraised value less disposition costs

16.20% - 36.20%

Other non-collateral dependent impaired loans

$
44,645

Cash flow valuation

Discount rate

4.25% - 12.25%

Foreclosed real estate

$
30,865

Fair value of property
    or collateral

Appraised value less disposition costs

16.20% - 36.20%

Other repossessed assets

$
3,574

Fair value of property
    or collateral

Estimated net realizable value less disposition costs

40.00% - 60.00%
85

September 30, 2019

Fair Value

Valuation Technique

Unobservable Input

Range

(In thousands)

Servicing assets

$
10,125

Cash flow valuation

Constant prepayment rate

4.38% -9.44%

Discount rate

10.00% - 12.00%
Collateral dependent
    impaired loans

$
31,564

Fair value of property
    or collateral

Appraised value less disposition costs

15.20% - 36.20%

Other non-collateral dependent impaired loans

$
27,943

Cash flow valuation

Discount rate

4.25% - 12.25%

Foreclosed real estate

$
26,952

Fair value of property
    or collateral

Appraised value less disposition costs

15.20% - 36.20%

Other repossessed assets

$
3,537

Fair value of property
    or collateral

Estimated net realizable value less disposition costs

28.00% - 72.00%

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

70
~~OFG BANCORP~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of Oriental.

The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer ~~relationships~~relationships of retail deposits, and premises and equipment.
7186
~~OFG BANCORP~~86
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~
The estimated fair value and carrying value of Oriental’s financial instruments at ~~March 31,~~September 30, 2019 and December 31, 2018 is as follows:

March 31,

December 31,
September 30,

December 31,

2019

2018
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
$
505,993

$
505,993

$
447,033

$
447,033
$
961,837

$
961,837

$
447,033

$
447,033
Restricted cash
$
3,030

$
3,030

$
3,030

$
3,030
$
1,050

$
1,050

$
3,030

$
3,030
Level 2

Financial Assets:

Trading securities
$
381

$
381

$
360

$
360
$
41

$
41

$
360

$
360
Investment securities available-for-sale
$
1,239,469

$
1,239,469

$
841,857

$
841,857
$
519,095

$
519,095

$
841,857

$
841,857
Investment securities held-to-maturity
$
-

$
-

$
410,353

$
424,740
$
-

$
-

$
410,353

$
424,740
Federal Home Loan Bank (FHLB) stock
$
12,800

$
12,800

$
12,644

$
12,644
$
10,525

$
10,525

$
12,644

$
12,644
Other investments
$
3

$
3

$
3

$
3
$
57

$
57

$
3

$
3
Derivative assets
$
110

$
110

$
347

$
347
$
13

$
13

$
347

$
347
Financial Liabilities:

Derivative liabilities
$
439

$
439

$
333

$
333
$
1,159

$
1,159

$
333

$
333
Level 3

Financial Assets:

Total loans (including loans held-for-sale)
$
4,074,348

$
4,401,401

$
4,106,628

$
4,431,594
$
4,106,958

$
4,407,190

$
4,106,628

$
4,431,594
Accrued interest receivable
$
33,152

$
33,152

$
34,254

$
34,254
$
30,470

$
30,470

$
34,254

$
34,254
Servicing assets
$
10,623

$
10,623

$
10,716

$
10,716
$
10,125

$
10,125

$
10,716

$
10,716
Accounts receivable and other assets
$
35,482

$
35,482

$
37,842

$
37,842
$
35,140

$
35,140

$
37,842

$
37,842
Financial Liabilities:

Deposits
$
4,868,473

$
4,897,101

$
4,881,903

$
4,908,115
$
4,888,607

$
4,878,058

$
4,881,903

$
4,908,115
Securities sold under agreements to repurchase
$
429,250

$
431,566

$
453,135

$
455,508
$
190,322

$
190,261

$
453,135

$
455,508
Advances from FHLB
$
81,366

$
81,111

$
78,503

$
77,620
$
81,075

$
79,052

$
78,503

$
77,620
Other borrowings
$
286

$
286

$
1,214

$
1,214
$
551

$
551

$
1,214

$
1,214
Subordinated capital notes
$
35,458

$
36,083

$
36,184

$
36,083
$
37,830

$
36,083

$
36,184

$
36,083
Accrued expenses and other liabilities
$
87,004

$
87,004

$
87,664

$
87,664
$
56,388

$
56,388

$
87,665

$
87,665
7287
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 ~~March 31,~~September 30, 2019 and December 31, 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, 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.

•    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.

•    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.

•    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.

•    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.

•    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~~sdates.
7388
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 2122 – BANKING AND FINANCIAL SERVICE REVENUES

The following table presents the major categories of banking and financial service revenues for the quarters and nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

Quarter Ended March 31,

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018

2019

2018

2019

2018

(In thousands)

(In thousands)
Banking service revenues:

Checking accounts fees

$
1,473

$
1,519

$
1,545

$
1,502

$
4,494

$
4,386
Savings accounts fees

155

154

187

161

484

473
Electronic banking fees

7,892

7,571

8,018

8,104

24,121

23,960
Credit life commissions

117

119

158

142

426

401
Branch service commissions

373

327

337

365

1,055

1,089
Servicing and other loan fees

316

601

433

334

1,069

1,554
International fees

137

169

127

185

393

534
Miscellaneous income

2

3

8

4

12

7
Total banking service revenues

10,465

10,463

10,813

10,797

32,054

32,404

Wealth management revenue:

Insurance income

1,281

1,238

1,576

1,654

4,505

4,298
Broker fees

1,757

1,789

1,913

1,941

5,637

5,387
Trust fees

2,604

2,696

2,895

2,541

8,307

8,138
Retirement plan and administration fees

240

287

227

271

713

856
Investment banking fees

-

9

-

-

-

9
Total wealth management revenue

5,882

6,019

6,611

6,407

19,162

18,688

Mortgage banking activities:

Net servicing fees

944

1,754

1,033

1,059

2,592

4,130
Net gains on sale of mortgage loans and valuation

162

3

124

103

375

182
Other

100

-

(39)

80

(14)

(325)
Total mortgage banking activities

1,206

1,757

1,118

1,242

2,953

3,987
Total banking and financial service revenues

$
17,553

$
18,239

$
18,542

$
18,446

$
54,169

$
55,079

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.
74
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~~Banking Services Revenue~~
Electronic banking fees are credit and debit card processing services, use of the Bank’s ATMs by non-customers, debit card interchange income and service charges on deposit accounts. Revenue is recorded once the contracted service has been provided.
Service charges on checking and saving accounts as consumer periodic maintenance revenue is recognized once the service is rendered, while overdraft and late charges revenue are recorded after the contracted service has been provided.
Other income as credit life commissions, servicing and other loan fees, international fees, and miscellaneous fees recognized as banking services revenue are out of the scope of the 606 ~~guideline.~~guidelines.
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)~~12b-1 fees). 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~~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.~~guidelines.
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.~~guidelines.

OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
75
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 2223 – 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.
7691
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 nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

Quarter Ended September 30, 2019



Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
85,147

$
16

$
8,492

$
93,655

$
-

$
93,655
Interest expense

(9,260)

-

(3,685)

(12,945)

-

(12,945)
Net interest income

75,887

16

4,807

80,710

-

80,710
Provision for loan and lease losses, net

(43,678)

-

(92)

(43,770)

-

(43,770)
Non-interest income

11,946

6,719

3,513

22,178

-

22,178
Non-interest expenses

(46,555)

(3,450)

(722)

(50,727)

-

(50,727)
Intersegment revenue

507

-

-

507

(507)

-
Intersegment expenses

-

(141)

(366)

(507)

507

-
(lLoss) income before income taxes
$
(1,893)

$
3,144

$
7,140

$
8,391

$
-

$
8,391
Income tax (benefit) expense

(738)

1,226

520

1,008

-

1,008
Net income (loss)
$
(1,155)

$
1,918

$
6,620

$
7,383

$
-

$
7,383
Total assets
$
5,919,877

$
26,596

$
1,465,329

$
7,411,802

$
(1,078,297)

$
6,333,505

Quarter Ended March 31, 2019
Nine-Month Period Ended September 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
$
83,516

$
18

$
11,176

$
94,710

$
-

$
94,710
$
253,138

$
53

$
29,429

$
282,620

$
-

$
282,620
Interest expense

(8,636)

-

(4,285)

(12,921)

-

(12,921)

(27,083)

-

(11,953)

(39,036)

-

(39,036)
Net interest income

74,880

18

6,891

81,789

-

81,789

226,055

53

17,476

243,584

-

243,584
Provision for loan and lease losses, net

(12,207)

-

(42)

(12,249)

-

(12,249)

(73,560)

-

(164)

(73,724)

-

(73,724)
Non-interest income

11,656

5,984

16

17,656

-

17,656

34,932

19,537

8,313

62,782

-

62,782
Non-interest expenses

(46,483)

(4,327)

(1,342)

(52,152)

-

(52,152)

(139,384)

(11,675)

(3,272)

(154,331)

-

(154,331)
Intersegment revenue

554

-

-

554

(554)

-

1,648

-

-

1,648

(1,648)

-
Intersegment expenses

-

(174)

(380)

(554)

554

-

-

(480)

(1,168)

(1,648)

1,648

-
Income before income taxes
$
28,400

$
1,501

$
5,143

$
35,044

$
-

$
35,044
$
49,691

$
7,435

$
21,185

$
78,311

$
-

$
78,311
Income tax expense

10,650

563

361

11,574

-

11,574

18,634

2,788

2,057

23,479

-

23,479
Net income
$
17,750

$
938

$
4,782

$
23,470

$
-

$
23,470
$
31,057

$
4,647

$
19,128

$
54,832

$
-

$
54,832
Total assets
$
5,862,487

$
25,425

$
1,742,557

$
7,630,469

$
(1,027,278)

$
6,603,191
$
5,919,877

$
26,596

$
1,465,329

$
7,411,802

$
(1,078,297)

$
6,333,505

Quarter Ended March 31, 2018



Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
74,374

$
12

$
8,784

$
83,170

$
-

$
83,170
Interest expense

(6,290)

-

(2,886)

(9,176)

-

(9,176)
Net interest income

68,084

12

5,898

73,994

-

73,994
Provision for loan and lease losses, net

(15,455)

-

(5)

(15,460)

-

(15,460)
Non-interest income

12,193

6,308

13

18,514

-

18,514
Non-interest expenses

(48,081)

(3,286)

(754)

(52,121)

-

(52,121)
Intersegment revenue

361

-

-

361

(361)

-
Intersegment expenses

-

(179)

(182)

(361)

361

-
Income before income taxes
$
17,102

$
2,855

$
4,970

$
24,927

$
-

$
24,927
Income tax expense (benefit)

6,670

1,113

227

8,010

-

8,010
Net income
$
10,432

$
1,742

$
4,743

$
16,917

$
-

$
16,917
Total assets
$
5,661,759

$
28,377

$
1,529,912

$
7,220,048

$
(972,927)

$
6,247,121
92

Quarter Ended September 30, 2018




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
83,664

$
9

$
10,464

$
94,137

$
-

$
94,137
Interest expense

(7,701)

-

(4,159)

(11,860)

-

(11,860)
Net interest income

75,963

9

6,305

82,277

-

82,277
Provision for loan and lease losses, net

(14,478)

-

(123)

(14,601)

-

(14,601)
Non-interest income

12,157

6,463

-

18,620

-

18,620
Non-interest expenses

(46,049)

(3,720)

(1,172)

(50,941)

-

(50,941)
Intersegment revenue

616

-

-

616

(616)

-
Intersegment expenses

-

(273)

(343)

(616)

616

-
Income before income taxes
$
28,209

$
2,479

$
4,667

$
35,355

$
-

$
35,355
Income tax expense

11,001

967

287

12,255

-

12,255
Net income
$
17,208

$
1,512

$
4,380

$
23,100

$
-

$
23,100
Total assets
$
6,156,500

$
25,243

$
1,459,682

$
7,641,425

$
(984,751)

$
6,656,674

Nine-Month Period Ended September 30, 2018




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
236,171

$
35

$
29,107

$
265,313

$
-

$
265,313
Interest expense

(21,123)

-

(10,331)

(31,454)

-

(31,454)
Net interest income

215,048

35

18,776

233,859

-

233,859
Provision for loan and lease losses, net

(44,677)

-

(131)

(44,808)

-

(44,808)
Non-interest income

36,590

19,219

28

55,837

-

55,837
Non-interest expenses

(140,239)

(12,288)

(2,835)

(155,362)

-

(155,362)
Intersegment revenue

1,519

-

-

1,519

(1,519)

-
Intersegment expenses

-

(660)

(859)

(1,519)

1,519

-
Income before income taxes
$
68,241

$
6,306

$
14,979

$
89,526

$
-

$
89,526
Income tax expense

26,614

2,459

787

29,860

-

29,860
Net income
$
41,627

$
3,847

$
14,192

$
59,666

$
-

$
59,666
Total assets
$
6,156,500

$
25,243

$
1,459,682

$
7,641,425

$
(984,751)

$
6,656,674
7793
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, 2018 (the “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.
78

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 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 2018 Form 10-K, we identified 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
·         Accounting for purchased credit-impaired loans
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing conditions. Management has reviewed and approved these critical accounting policies and has discussed its judgments and assumptions with the ~~Audit~~Risk and Compliance Committee of ~~our~~the Board of Directors. T~~here~~As part of Oriental’s continuous enhancement to the allowance for loan and lease losses methodology, during the quarter ended September 30, 2019, an assessment of environmental factors was performed for auto, mortgage, consumer and commercial portfolios. As a result, the impact of each environmental factor was calibrated based on their correlation with each portfolio. Current environmental factors adjustments reflect our assessment of the impact to our portfolio, taking into consideration current evolution of the portfolio, recent economic developments, changes in values of collateral and delinquencies, among others. These changes in the allowance for loan and lease losses’ environmental factors adjustments for the auto, mortgage, consumer and commercial portfolios are considered a change in accounting estimate as per ASC 250-10 provisions, where adjustments should be made prospectively. Apart from these changes, there have been no other material changes in the methods used to formulate these critical accounting estimates from those discussed in our 2018 Form 10-K.
7994
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
~~OVERVIEW OF FINANCIAL PERFORMANCE~~SELECTED FI NANCIAL DATA
SELECTED FINANCIAL DATA

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

Variance

Variance

Variance

2019

2018

%
2019

2018

%

2019

2018

%
EARNINGS DATA:
(In thousands, except per share data)
(In thousands, except per share data)
Interest income
$
94,710

$
83,170

13.9%
$
93,655

$
94,137

-0.5%

$
282,620

$
265,313

6.5%
Interest expense

12,921

9,176

40.8%

12,945

11,860

9.1%

39,036

31,454

24.1%
Net interest income

81,789

73,994

10.5%

80,710

82,277

-1.9%

243,584

233,859

4.2%
Provision for loan and lease losses, net

12,249

15,460

-20.8%

43,770

14,601

199.8%

73,724

44,808

64.5%
Net interest income after provision for loan
and lease losses

69,540

58,534

18.8%

36,940

67,676

-45.4%

169,860

189,051

-10.2%
Non-interest income

17,656

18,514

-4.6%

22,178

18,620

19.1%

62,782

55,837

12.4%
Non-interest expenses

52,152

52,121

0.1%

50,727

50,941

-0.4%

154,331

155,362

-0.7%
Income before taxes

35,044

24,927

40.6%

8,391

35,355

-76.3%

78,311

89,526

-12.5%
Income tax expense

11,574

8,010

44.5%

1,008

12,255

-91.8%

23,479

29,860

-21.4%
Net income

23,470

16,917

38.7%

7,383

23,100

-68.0%

54,832

59,666

-8.1%
Less: dividends on preferred stock

(1,628)

(3,465)

53.0%

(1,628)

(3,466)

53.0%

(4,884)

(10,396)

53.0%
Income available to common shareholders
$
21,842

$
13,452

62.4%
$
5,755

$
19,634

-70.7%

$
49,948

$
49,270

1.4%
PER SHARE DATA:

Basic
$
0.43

$
0.31

38.7%
$
0.11

$
0.45

-75.6%

$
0.97

$
1.12

-13.4%
Diluted
$
0.42

$
0.30

40.0%
$
0.11

$
0.42

-73.8%

$
0.97

$
1.07

-9.3%
Average common shares outstanding

51,305

43,955

16.7%

51,345

43,996

16.7%

51,327

43,975

16.7%
Average common shares outstanding and equivalents

51,626

51,121

1.0%

51,772

51,464

0.6%

51,695

51,344

0.7%
Cash dividends declared per common share
$
0.07

$
0.06

16.7%
$
0.07

$
0.06

16.6%

$
0.21

$
0.18

16.6%
Cash dividends declared on common shares
$
3,591

$
2,638

36.1%
$
3,596

$
2,641

36.2%

$
10,782

$
7,919

36.2%
PERFORMANCE RATIOS:

Return on average assets (ROA)

1.42%

1.09%

30.3%

0.46%

1.42%

-67.6%

1.12%

1.25%

-10.4%
Return on average tangible common equity

10.32%

7.73%

33.5%

2.58%

10.94%

-76.4%

7.67%

9.30%

-17.5%
Return on average common equity (ROE)

9.34%

6.84%

36.5%

2.35%

9.72%

-75.8%

6.96%

8.25%

-15.6%
Efficiency ratio

52.50%

56.51%

-7.1%

51.11%

50.58%

1.0%

51.83%

53.77%

-3.6%
Interest rate spread

5.26%

5.14%

2.3%

5.23%

5.29%

-1.1%

5.26%

5.20%

1.2%
Interest rate margin

5.37%

5.22%

2.9%

5.35%

5.38%

-0.5%

5.38%

5.28%

1.9%
95
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
SELECTED FINANCIAL DATA - (Continued)

March 31,

December 31,

Variance
September 30,

December 31,

Variance

2019

2018

%
2019

2018

%
PERIOD END BALANCES AND CAPITAL RATIOS:
(In thousands, except per share data)
(In thousands, except per share data)
Investments and loans

Investment securities
$
1,252,653

$
1,279,604

-2.1%
$
529,718

$
1,279,604

-58.6%
Loans and leases, net

4,401,401

4,431,594

-0.7%

4,407,190

4,431,594

-0.6%
Total investments and loans
$
5,654,054

$
5,711,198

-1.0%
$
4,936,908

$
5,711,198

-13.6%
Deposits and borrowings

Deposits
$
4,897,101

$
4,908,115

-0.2%
$
4,878,058

$
4,908,115

-0.6%
Securities sold under agreements to repurchase

431,566

455,508

-5.3%

190,261

455,508

-58.2%
Other borrowings

117,480
��

114,917

2.2%

115,686

114,917

0.7%
Total deposits and borrowings
$
5,446,147

$
5,478,540

-0.6%
$
5,184,005

$
5,478,540

-5.4%
Stockholders’ equity

Preferred stock
$
92,000

$
92,000

0.0%
$
92,000

$
92,000

0.0%
Common stock

59,885

59,885

0.0%

59,885

59,885

0.0%
Additional paid-in capital

619,828

619,381

0.1%

620,948

619,381

0.3%
Legal surplus

92,621

90,167

2.7%

95,783

90,167

6.2%
Retained earnings

268,101

253,040

6.0%

285,854

253,040

13.0%
Treasury stock, at cost

(103,196)

(103,633)

0.4%

(102,936)

(103,633)

0.7%
Accumulated other comprehensive (loss)

(8,047)

(10,963)

26.6%

(2,458)

(10,963)

-77.6%
Total stockholders' equity
$
1,021,192

$
999,877

2.1%
$
1,049,076

$
999,877

4.9%
Per share data

Book value per common share
$
18.30

$
17.90

2.2%
$
18.84

$
17.90

5.2%
Tangible book value per common share
$
16.56

$
16.15

2.5%
$
17.11

$
16.15

6.0%
Market price at end of period
$
19.79

$
16.46

20.2%
$
21.90

$
16.46

33.0%
Capital ratios

Leverage capital

14.64%

14.22%

3.0%

15.41%

14.22%

8.4%
Common equity Tier 1 capital ratio

17.09%

16.78%

1.8%

17.98%

16.78%

7.2%
Tier 1 risk-based capital

19.49%

19.20%

1.5%

20.43%

19.20%

6.4%
Total risk-based capital

20.77%

20.48%

1.4%

21.71%

20.48%

6.0%
Equity to assets ratio

15.47%

15.19%

1.8%

16.56%

15.19%

9.0%
Financial assets managed

Trust assets managed
$
2,925,982

$
2,771,462

5.6%
$
2,980,319

$
2,771,462

7.5%
Broker-dealer assets
$
2,302,834

$
2,116,035

8.8%
$
2,349,369

$
2,116,035

11.0%
8196
96
FINANCIAL HIGHLIGHTS

~~Summary for~~Oriental’s core operations continued to deliver excellent results during the ~~first~~third quarter of 2019. We took advantage of market conditions and sold MBS and fully charged off loans at a profit and decided to sell a good portion of our remaining non-performing loans. This further strengthens our liquidity and balance sheet to continue our growth strategy and prefunds our $560 million acquisition of Scotiabank’s operations in PR and USVI.
Our strategies are proving highly effective in capturing the positive economic shift taking place in Puerto Rico. Our small business, auto and consumer loan production, core deposit growth, improved credit quality and capital, and number of net new clients confirm the success of our customer focused approach to banking – Fácil, Rápido, Hecho (Easy, Fast, Done). As a result, we generated a 14% year over year increase in adjusted earnings per share. With our NPL sales, we reduced 3Q19 non-performing loans 40% year over year, to 2% of originated loans, which will enable us to free up resources, reduce NPL related expenses, and increase operating flexibility. Combined with the sale of MBS, we have close to $1 billion in cash to fund our growth plans, including our acquisition of Scotiabank’s PR and USVI operations. The MBS sales also enabled us to reduce high cost brokered CDs and borrowings.
Looking ahead, Oriental will further consolidate its position as the premier retail bank on the island. Upon closing the Scotiabank Transaction, we become the second largest bank in Puerto Rico in core deposits, branches, automated and interactive teller machines, mortgage servicing, and insurance brokerage, and the third largest bank in the U.S. Virgin Islands.
Comparison of the quarters ended September 30, 2019 versus ~~first quarter of~~ 2018

·         Net interest income and total banking and financial revenues increased 7.7% to $99.3 million from $92.2 million. Increased interest income from originated loans and investment securities and cash more than offset pay downs of acquired loans.
·~~Net~~ income available to shareholders ~~increased 62.4% to $21.8~~of $5.8 million, ~~from $13.5 million. Results reflect increased operating leverage, reduced provision and elimination of dividends on Series C preferred stock following its conversion.~~
·~~Earnings~~or $0.11 per share fully diluted, reflects the impact of ~~$0.42~~several strategic transactions, compared to ~~$0.30, a 40% increase.~~
·$19.6 million, or $0.43 per share fully diluted. Book value per common share ~~increased 3.0%~~grew 3.1% to ~~$18.30.~~$18.84. Tangible ~~book value~~Book Value per common share expanded 5.4% to ~~$16.56.~~$17.11.
·Third quarter of 2019 included $40.5 million pre-tax from items that negatively affected results, primarily due to the decision to sell mostly non-performing loans, partially offset by $13.0 million pre-tax from items that benefited results, such as the sale of available-for-sale mortgage-backed securities (MBS) and of fully charged-off loans, and the adjustment to the qualitative factors of the allowance for loan and lease losses.
·Excluding the above items, the third quarter of 2019 adjusted net income available to shareholders was $26.5 million, or $0.48 per share fully diluted.
·         Loans at September 30, 2019 increased ~~6.5%~~1.2% to ~~$4.40~~$4.41 billion. Average core deposits rose 3.4% to $4.56 billion, while ~~deposits grew 1.3% to $4.90 billion.~~
·non-core funding was reduced 41.7% by quarter end. New loan origination of ~~$276.4~~$291.4 million ~~included a 41.4% increase~~reflected Oriental Bank’s success in ~~commercial loans due to the success of Oriental’s strategic~~ targeting of small business ~~customers.~~
·customers and our growing consumer banking business. Net ~~interest margin of 5.37%~~Interest Margin remained strong at 5.35%, ~~a 15 basis points increase, while both credit quality and the efficiency ratio improved.~~
·~~Return on average assets increased 33 basis points to 1.42%, return on average tangible common equity expanded 259 basis points to 10.32%,~~total delinquency rate improved, and capital metrics continued atto climb to new multi-year highs.

Oriental prepared its consolidated financial statement using accounting principles generally accepted in the U.S. (“U.S. GAAP” or the ‘reported basis”). In addition to analyzing Oriental’s results on the reported basis, management monitors the “Adjusted net income” of Oriental and excludes the impact of certain transactions on the results of its operations. Management believes that “Adjusted net income” provides meaningful information to investors about the underlying performance of Oriental’s ongoing operations. “Adjusted net income” is a non-GAAP financial measure.
The table below describes adjustments to net income for the quarters ended September 30, 2019 and June 30, 2019.
97
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter ended September 30, 2019

Quarter ended June 30, 2019

Income Tax

Impact on

Income Tax

Impact on
(Dollars in thousands) (unaudited)
Pre-tax

Effect (i)

Net Income

Pre-tax

Effect (i)

Net Income

U.S. GAAP net income

$
7,383

$
23,979
Non-GAAP adjustments:

     Sale of mortgage-backed securities available-for-sale (a)
$
(3,498)

$
1,067

(2,431)

$
(4,769)

$
1,532

(3,237)
    Non-performing loans transferred to held-for-sale or sold (b)(c)

38,958

(11,886)

27,072

8,803

(2,828)

5,975
     Sale of fully charged-off loans (d)

(2,382)

727

(1,655)

-

-

-
    Merger expenses (e)

1,556

(475)

1,081

1,000

(321)

679
     FDIC insurance assessment credit (f)

(1,534)

468

(1,066)

-

-

-
    Hacienda credit for hurricane Maria (g)

(1,010)

308

(702)

-

-

-
     Environmental factors adjustment (h)

(4,541)

1,385

(3,156)

-

-

-
Adjusted net income (Non-GAAP)

$
26,527

$
27,396
Less: dividends on preferred stoc

(1,628)

(1,628)
Adjusted net income available to common shareholders (Non-GAAP)

$
24,899

$
25,768

U.S. GAAP earnings per common share - diluted

$
0.11

$
0.43
   Non-GAAP adjustments:

    Sale of mortgage-backed securities available-for-sale
$
(0.07)

$
0.02

(0.05)

$
(0.09)

$
0.03

(0.06)
     Non-performing loans transferred to held-for-sale or sold (b)(c)

0.75

(0.23)

0.52

0.17

(0.05)

0.12
    Sale of fully charged-off loans (d)

(0.04)

0.01

(0.03)

-

-

-
     Merger expenses (e)

0.03

(0.01)

0.02

0.02

(0.01)

0.01
    FDIC insurance assessment credit (f)

(0.03)

0.01

(0.02)

-

-

-
     Hacienda credit for hurricane Maria (g)

(0.02)

0.01

(0.01)

-

-

-
    Environmental factors adjustment (h)

(0.09)

0.03

(0.06)

-

-

-
Adjusted earnings per common share - diluted (Non-GAAP)

$
0.48

$
0.50
98
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Adjusted Performance Metrics - Reconciliation to GAAP Financial Measures:

Quarter ended September 30, 2019

Quarter ended June 30, 2019
Net income

$
7,383

$
23,979
Non-GAAP adjustments (a)(b)(c)(d)(e)(f)(g)(h)

19,144

3,417
Adjusted net income (Non-GAAP)

26,527

27,396

Average assets

6,433,658

6,496,423

Return on average assets

0.46%

1.48%
Adjusted return on average assets (Non-GAAP)

1.65%

1.69%

Net income available to common shareholders

$
5,755

$
22,351
Non-GAAP adjustments (a)(b)(c)(d)(e)(f)(g)(h)

19,144

3,417
Adjusted net income available to common shareholders (Non-GAAP)

24,899

25,768

Average tangible common equity

890,970

866,192

Return on average tangible common stockholders' equity

2.58%

10.32%
Adjusted return on average tangible common stockholders' equity (Non-GAAP)

11.18%

11.90%

Total non-interest expense

$
50,727

$
51,452
Non-GAAP adjustments, pre-tax (e)(f)(g)

988

(1,000)
Adjusted total non-interest expense (Non-GAAP)

51,715

50,452

Net interest income

80,710

81,085
Total banking and financial service revenues

18,542

18,074

99,252

99,159

Efficiency ratio

51.11%

51.89%
Adjusted efficiency ratio (Non-GAAP)

52.10%

50.88%

(a) During the second and third quarter of 2019, the Company sold $350 million and $322 million available-for-sale mortgage-backed securities, respectively, and recognized a gain in the sale of $4.8 million and $3.5 million, respectively.
(b) During third quarter of 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during fourth quarter of 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(c) During second quarter of 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in third quarter of 2019, increasing the provision by an additional $2.3 million.
(d) During third quarter of 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(e) During second quarter of 2019, the Company entered into an agreement with BNS to acquire its Puerto Rico and US Virgin Islands operations, subject to customary closing conditions. During second quarter of 2019 and third quarter of 2019, $1.0 million and $1.6 million, respectively, were incurred in related expenses.
(f) During third quarter of 2019, the Company recognized an FDIC insurance assessment credit received amounting to $1.5 million.
(g) During third quarter of 2019, the Company received an additional $1 million credit from the Puerto Rico Treasury on employee retention during hurricane Maria.
(h) During third quarter of 2019, the Company had a reduction in provision for loan losses of $4.5 million as a result of the adjustment to the qualitative factor related to sustained favorable macroeconomic conditions in Puerto Rico.
(i) Income tax effect reflects estimated income tax annual rates at September 30, 2019 and June 30, 2019 of 30.51% and 32.12%, respectively.
99
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Excluding the aforementioned impact (Non-GAAP):
·The following resulted in a net $32.0 million increase in the provision for loan losses:
•Increase of $39.0 million primarily from deciding to sell $95.0 million unpaid principal balance in non-performing commercial and mortgage loans, both acquired and originated. These are expected to be sold in the fourth quarter of 2019.
•Decrease of $2.4 million from the proceeds of the sale of $26.0 million of previously charged off auto and consumer loans.
•Decrease of $4.5 million from the adjustment to qualitative factors of the allowance for loan and lease losses, reflecting sustained favorable macroeconomic conditions in Puerto Rico.
·The sale of $322.0 million of low-yielding MBS available-for-sale investments resulted in a $3.5 million pre-tax gain in other income, and the continued reduction of higher cost brokered CDs and repurchase agreements funding.
·The following resulted in a net $1.0 million reduction in non-interest expenses: $1.5 million credit for FDIC insurance assessment, $1.0 million credit from Hacienda on employee retention during hurricane Maria, and $1.6 million in Scotiabank acquisition related expenses.
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 nine-month periods ended ~~March 31,~~September 30, 2019 and 2018:

82100
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE QUARTERS ENDED MARCH 31, 2019 AND 2018
FOR THE QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018
FOR THE QUARTERS ENDED SEPTEMBER 30, 2019 AND 2018

Interest

Average rate

Average balance
Interest

Average rate

Average balance

March

March

March

March

March

March
September

September

September

September

September

September

2019

2018

2019
2018

2019

2018
2019

2018

2019
2018

2019

2018

(Dollars in thousands)
(Dollars in thousands)
A - TAX EQUIVALENT SPREAD

Interest-earning assets
$
94,710

$
83,169

6.22%

5.86%

$
6,171,448

$
5,751,444
$
93,655

$
94,137

6.21%

6.17%

$
5,981,757

$
6,055,085
Tax equivalent adjustment

2,338

1,162

0.15%

0.08%

-

-

2,629

1,934

0.17%

0.13%

-

-
Interest-earning assets - tax equivalent

97,048

84,331

6.37%

5.94%

6,171,448

5,751,444

96,284

96,071

6.38%

6.30%

5,981,757

6,055,085
Interest-bearing liabilities

12,922

9,174

0.96%

0.72%

5,452,860

5,134,452

12,945

11,860

0.98%

0.87%

5,261,453

5,437,736
Tax equivalent net interest income / spread

84,126

75,157

5.41%

5.22%

718,588

616,992

83,339

84,211

5.40%

5.43%

720,304

617,349
Tax equivalent interest rate margin

5.56%

5.31%

5.58%

5.56%

B - NORMAL SPREAD

Interest-earning assets:

Investments:

Investment securities

8,223

7,350

2.65%

2.40%

1,258,899

1,239,794

3,797

8,445

2.14%

2.55%

708,606

1,327,180
Interest bearing cash and money market investments

2,368

1,207

2.47%

1.51%

388,578

323,695

4,086

1,676

2.21%

2.03%

734,105

327,268
Total investments

10,591

8,557

2.61%

2.22%

1,647,477

1,563,489

7,883

10,121

2.14%

2.55%

1,442,711

1,654,448
Non-acquired loans

Mortgage

8,887

9,012

5.39%

5.28%

668,654

692,532

8,427

8,808

5.40%

5.28%

623,772

667,372
Commercial

25,202

18,322

6.42%

5.65%

1,591,415

1,315,993

25,607

23,373

6.36%

6.13%

1,597,902

1,512,661
Consumer

10,977

9,952

12.36%

11.60%

360,093

348,029

11,449

10,857

11.99%

11.68%

378,967

363,884
Auto and leasing

26,232

21,019

9.15%

9.12%

1,162,153

934,501

28,820

25,349

9.09%

9.59%

1,258,394

1,057,232
Total non-acquired loans

71,298

58,305

7.64%

7.18%

3,782,315

3,291,055

74,303

68,387

7.64%

7.53%

3,859,035

3,601,149
Acquired loans:

Acquired BBVAPR

Mortgage

6,351

7,071

5.44%

5.57%

473,517

515,226

5,876

6,722

5.33%

5.43%

440,954

495,454
Commercial

2,707

3,746

6.90%

6.96%

159,049

218,199

2,386

4,046

6.72%

9.29%

140,821

172,724
Consumer

809

760

25.30%

21.12%

12,969

14,596

667

586

20.52%

17.37%

12,894

13,381
Auto

380

1,389

15.47%

11.00%

9,962

51,211

161

790

20.55%

11.72%

3,108

26,747
Total acquired BBVAPR loans

10,247

12,966

6.34%

6.58%

655,497

799,232

9,090

12,144

6.08%

6.86%

597,777

708,306
Acquired Eurobank

2,574

3,341

12.12%

13.87%

86,159

97,668

2,379

3,485

11.57%

15.29%

82,234

91,182
Total loans

84,119

74,612

7.54%

7.23%

4,523,971

4,187,955

85,772

84,016

7.50%

7.57%

4,539,046

4,400,637
Total interest-earning assets

94,710

83,169

6.22%

5.86%

6,171,448

5,751,444

93,655

94,137

6.21%

6.17%

5,981,757

6,055,085

83101
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Interest

Average rate

Average balance
Interest

Average rate

Average balance

March

March

March
March
March

March
September

September

September
September
September

September

2019

2018

2019

2018

2019

2018
2019

2018

2019

2018

2019

2018

(Dollars in thousands)
(Dollars in thousands)
Interest-bearing liabilities:

Deposits:

NOW Accounts

1,454

899

0.53%

0.34%

1,119,612

1,059,129

1,616

1,196

0.57%

0.43%

1,118,156

1,096,023
Savings and money market

1,615

1,497

0.55%

0.50%

1,181,024

1,211,364

2,012

1,571

0.67%

0.51%

1,199,678

1,211,693
Time deposits

2,944

2,800

1.20%

1.11%

992,331

1,024,740

4,427

2,896

1.53%

1.12%

1,151,248

1,027,424
Total core deposits

6,013

5,196

0.74%

0.64%

3,292,967

3,295,233

8,055

5,663

0.92%

0.67%

3,469,082

3,335,140
Brokered deposits

2,835

1,887

2.31%

1.64%

498,116

466,638

2,298

2,727

2.55%

2.08%

358,130

519,502

8,848

7,083

0.95%

0.76%

3,791,083

3,761,871

10,353

8,390

1.07%

0.86%

3,827,212

3,854,642
Non-interest bearing deposits

-

-

0.00%

0.00%

1,099,624

1,020,730

-

-

0.00%

0.00%

1,094,047

1,079,826
Core deposit intangible amortization

201

215

0.00%

0.00%

-

-

201

215

0.00%

0.00%

-

-
Total deposits

9,049

7,298

0.75%

0.62%

4,890,707

4,782,601

10,554

8,605

0.85%

0.69%

4,921,259

4,934,468
Borrowings:

Securities sold under agreements to repurchase

2,785

1,076

2.54%

1.73%

444,843

251,582

1,342

2,242

2.37%

2.28%

224,783

390,225
Advances from FHLB and other borrowings

563

374

2.81%

2.36%

81,226

64,186

550

517

2.75%

2.67%

79,328

76,960
Subordinated capital notes

524

427

5.89%

4.80%

36,083

36,083

499

496

5.49%

5.45%

36,083

36,083
Total borrowings

3,872

1,877

2.79%

2.16%

562,152

351,851

2,391

3,255

2.79%

2.57%

340,194

503,268
Total interest bearing liabilities

12,921

9,175

0.96%

0.72%

5,452,859

5,134,452

12,945

11,860

0.98%

0.87%

5,261,453

5,437,736
Net interest income / spread
$
81,789

$
73,994

5.26%

5.14%

$
80,710

$
82,277

5.23%

5.30%

Interest rate margin

5.37%

5.22%

5.35%

5.39%

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

$
718,587

$
616,992

$
720,304

$
617,350
Average interest-earning assets to average
interest-bearing liabilities ratio

113.18%

112.02%

113.69%

111.35%

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
$
460

$
1,574

$
2,034

$
(1,295)

$
(943)

$
(2,238)

Loans

5,977

3,530

9,507

2,660

(904)

1,756

Total interest income

6,437

5,104

11,541

1,365

(1,847)

(482)

Interest Expense:

Deposits

165

1,586

1,751

(23)

1,972

1,949

Repurchase agreements

827

882

1,709

(951)

51

(900)

Other borrowings

136

150

286

21

15

36

Total interest expense

1,128

2,618

3,746

(953)

2,038

1,085

Net Interest Income
$
5,309

$
2,486

$
7,795

$
2,318

$
(3,885)

$
(1,567)

84102
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2019 AND 2018


Interest

Average rate

Average balance

September

September

September

September

September

September

2019

2018

2019
2018

2019

2018

(Dollars in thousands)
A - TAX EQUIVALENT SPREAD

Interest-earning assets
$
282,620

$
265,314

6.24%

6.01%

$
6,055,475

$
5,906,945
Tax equivalent adjustment

8,013

5,800

0.18%

0.13%

-

-
Interest-earning assets - tax equivalent

290,633

271,114

6.42%

6.14%

6,055,475

5,906,945
Interest-bearing liabilities

39,036

31,455

0.98%

0.79%

5,350,683

5,293,422
Tax equivalent net interest income / spread

251,597

239,659

5.44%

5.34%

704,792

613,523
Tax equivalent interest rate margin

5.62%

5.47%

B - NORMAL SPREAD

Interest-earning assets:

Investments:

Investment securities

18,292

24,131

2.44%

2.48%

1,000,217

1,299,357
Interest bearing cash and money market investments

9,357

4,126

2.33%

1.76%

535,865

313,410
        Total investments

27,649

28,257

2.44%

2.48%

1,536,082

1,612,767
Non-acquired loans

Mortgage

26,022

26,602

5.44%

5.25%

637,680

675,191
Commercial

76,383

62,119

6.43%

5.88%

1,588,887

1,411,413
Consumer

33,392

30,783

11.98%

11.42%

373,644

360,258
Auto and leasing

82,783

70,053

9.18%

9.39%

1,206,054

996,972
        Total non-acquired loans

218,580

189,557

7.68%

7.36%

3,806,265

3,443,834
Acquired loans:

Acquired BBVAPR

Mortgage

18,342

20,710

5.34%

5.46%

458,410

505,659
Commercial

7,539

11,297

6.69%

7.63%

150,776

197,934
Consumer

2,270

2,038

23.53%

19.60%

12,900

13,903
Auto

788

3,263

16.12%

11.30%

6,536

38,624
        Total acquired BBVAPR loans

28,939

37,308

6.14%

6.58%

628,622

756,120
Acquired Eurobank

7,452

10,192

11.76%

14.42%

84,506

94,224
            Total loans

254,971

237,057

7.54%

7.38%

4,519,393

4,294,178
                Total interest-earning assets

282,620

265,314

6.24%

6.01%

6,055,475

5,906,945
103
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Interest

Average rate

Average balance

September

September

September

September

September

September

2019

2018

2019

2018

2019

2018

(Dollars in thousands)
Interest-bearing liabilities:

Deposits:

NOW Accounts

4,800

3,064

0.57%

0.38%

1,120,807

1,069,341
Savings and money market

5,508

4,623

0.62%

0.51%

1,187,020

1,216,198
Time deposits

11,024

8,475

1.38%

1.11%

1,070,111

1,021,707
        Total core deposits

21,332

16,162

0.84%

0.65%

3,377,938

3,307,246
Brokered deposits

7,660

6,748

2.42%

1.86%

422,364

485,832

28,992

22,910

1.02%

0.81%

3,800,302

3,793,078
Non-interest bearing deposits

-

-

0.00%

0.00%

1,097,145

1,060,535
Core deposit intangible amortization

602

644

0.00%

0.00%

-

-
            Total deposits

29,594

23,554

0.81%

0.65%

4,897,447

4,853,613
Borrowings:

Securities sold under agreements to repurchase

6,234

5,160

2.47%

2.08%

336,859

332,215
Advances from FHLB and other borrowings

1,671

1,339

2.78%

2.50%

80,294

71,512
Subordinated capital notes

1,537

1,402

5.70%

5.19%

36,083

36,083
        Total borrowings

9,442

7,901

2.79%

2.40%

453,236

439,810
            Total interest-bearing liabilities

39,036

31,455

0.98%

0.79%

5,350,683

5,293,423
Net interest income / spread
$
243,584

$
233,859

5.26%

5.22%

Interest rate margin

5.38%

5.29%

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

$
704,792

$
613,522
Average interest-earning assets to average
    interest-bearing liabilities ratio

113.17%

$
111.59%

C - CHANGES IN NET INTEREST INCOME DUE TO:

Volume

Rate

Total

(In thousands)

Interest Income:

Investments
$
(1,344)

$
737

$
(607)

Loans

11,639

6,274

17,913

        Total interest income

10,295

7,011

17,306

Interest Expense:

Deposits

213

5,827

6,040

Repurchase agreements

72

1,002

1,074

Other borrowings

224

243

467

        Total interest expense

509

7,072

7,581

Net Interest Income
$
9,786

$
(61)

$
9,725

104
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Net Interest Income

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

Comparison of the quarters ended ~~March~~September 30, 2019 and 2018
Net interest income of $80.7 million decreased $1.6 million from $82.3 million. Interest rate spread decreased 7 basis points to 5.23% from 5.30% and net interest margin decreased 4 basis points to 5.35% from 5.39%. These decreases are mainly due to the net effect of an increase of 4 basis points in the average yield of total interest-earning assets and an increase of 11 basis points in average cost of interest-bearing liabilities.
Net interest income was positively impacted by:
Increase in interest income from originated loans of $5.9 million, reflecting higher balances in commercial, consumer and auto loan portfolios.
Increase in interest income from cash and money markets instruments of $2.4 million reflecting the $322.4 million of available-for-sale mortgage-backed securities sale in the quarter ended September 30, 2019; and
Decrease of $864 thousand in the interest expense from borrowings mainly related to the sale of mortgage-backed securities which reduced the necessity of high cost repurchase agreements funding.
Net interest income was adversely impacted by:
·Decrease in interest income from investment securities of $4.6 million, or 41 basis points, due to a decrease in volume and yield of $3.4 million and $1.2 million, respectively, mainly reflecting the sale of $322.4 million of mortgage-backed securities in the quarter ended September 30, 2019;
·Decrease in interest income from acquired loans of $4.2 million, reflecting decrease in volume of $2.7 million and yield of $1.5 million as such loans continue to be repaid; and
·Increase in interest expense from deposits of $2.0 million, mainly from an increase in cost of customer deposits and brokered deposits of $1.9 million and $527 thousand, respectively.
Comparison of the nine-month period ended September 30, 2019 and 2018

Net interest income of ~~$81.8~~$243.6 million increased ~~$7.8~~$9.7 million from ~~$74.0~~$233.9 million. Interest rate spread increased 124 basis points to 5.26% from ~~5.14%~~5.22% and net interest margin increased 159 basis points to ~~5.37%~~5.38% from ~~5.22%~~5.29%. These increases are mainly due to the net effect of an increase of 3623 basis points in the average yield of total interest-earning assets and ~~an increase of 24 basis point in average cost of interest-bearing liabilities.~~
~~Net interest income increased as a result of:~~
·Higher interest income from investments of $2.0 million, reflecting an increase in interest rates and volume of $1.6 million and $460 thousand, respectively. Cash and money market investments increased 98 basis points and investments securities increased 25 basis points, both mainly due to an increase in Federal Reserve Bank interest rates~~; and~~
·Higher interest income from originated loans of $13.0 million, reflecting higher balances in the commercial, auto and consumer portfolios. This increase also reflects higher interest rates in the originated loan portfolio by 46 basis points.
~~Such increases in net interest income were adversely impacted by:~~
·An increase in interest expense of $3.7 million mainly from an increase in volume of repurchase agreements by $827 thousand and an increase in cost of deposits and repurchase agreements of $1.6 million and $882 thousand, respectively, and;
·~~A decrease of $3.5 million in the interest income from acquired loans as such loans continue to be repaid.~~
~~Comparison of the quarters ended March 31, 2018 and 2017~~
Net interest income of $74.0 million decreased $623 thousand from $74.6 million. Interest rate spread increased 11 basis points to 5.13% from 5.02% and net interest margin increased 12 basis points to 5.22% from 5.10%. These increases are mainly due to the net effect of a decrease of 3 basis points in the average yield of total interest earning assets and a decrease of 1419 basis points in the total average cost of interest-bearing liabilities.

Net interest income was positively impacted by:

·~~Higher~~Increase in interest income from originated loans ~~of $4.8~~by $29.0 million, reflecting higher balances in ~~the~~ commercial, consumer and ~~retail~~auto loan portfolios; and

·~~Lower~~Higher interest ~~expenses on securities sold under agreements to repurchase~~income from cash and money market of $5.2 million due to ~~decreases~~increase in price and volume ~~and interest rate~~ of ~~$1.8~~$1.6 million and ~~$344 thousand, respectively, mainly as a result of (i) the repayment at maturity of a $232.0~~$3.6 million, ~~repurchase agreement at 4.78% in March 2017, and (ii) the~~respectively. ~~unwinding of $100.0 million repurchase agreements in June 2017.~~

Net interest income was adversely impacted by:

·         ~~A decrease of $7.9 million~~Decrease in the interest income from ~~the~~ acquired ~~BBVAPR and Eurobank loan portfolios~~loans of $11.1 million as such loans continue to be ~~repaid~~repaid;.
85105
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Increase in interest expense from deposits of $6.0 million, mainly from an increase in customer and brokered deposit costs of $5.2 million and $912 thousand, respectively, and increase in cost of repurchase agreements of $1.0 million; and
Decrease in interest income from investment of $5.8 million reflecting mortgage-backed securities sale in the second and third quarter of 2019.
TABLE 2 - NON-INTEREST INCOME SUMMARY

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018

Variance
2019

2018

Variance

2019

2018

Variance

(Dollars in thousands)
(Dollars in thousands)
Banking service revenue
$
10,465

$
10,463

0.0%
$
10,813

$
10,797

0.1%

$
32,054

$
32,404

-1.1%
Wealth management revenue

5,882

6,019

-2.3%

6,611

6,407

3.2%

19,162

18,688

2.5%
Mortgage banking activities

1,206

1,757

-31.4%

1,118

1,242

-10.0%

2,953

3,987

-25.9%
Total banking and financial service revenue

17,553

18,239

-3.8%

18,542

18,446

0.5%

54,169

55,079

-1.7%
Net gain (loss) on:

Sale of securities available for sale

3,498

-

100.0%

8,274

-

100.0%
Early extinguishment of debt

-

-

0.0%

(7)

-

-100.0%
Other non-interest income

103

275

-62.5%

138

174

-20.7%

346

758

-54.4%
Total non-interest income, net
$
17,656

$
18,514

-4.6%
$
22,178

$
18,620

19.1%

$
62,782

$
55,837

12.4%

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 ~~March 31,~~September 30, 2019 and 2018

Oriental recorded non-interest income, net, in the amount of ~~$17.7~~$22.2 million, compared to ~~$18.5~~$18.6 million, ~~a decrease~~an increase of ~~4.6%~~19.1%, or ~~$858 thousand.~~$3.6 million. The net ~~decrease~~increase in non-interest income was mainly due ~~to:~~to a gain on the sale of $322.4 million mortgage-backed securities during the quarter of $3.5 million.

·A decrease of $551 thousand in mortgage banking activities, mainly from lower valuation of the servicing asset by $804 thousand, partially offset by higher gains on loans sold by $77 thousand due to higher volume;
·~~A decrease of $137 thousand in wealth management revenue mainly from lower fee income from the trust division, commissions revenues and consulting revenues.~~
Comparison of ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 ~~and 2017~~

Oriental recorded non-interest income, net, in the amount of ~~$18.5~~$62.8 million, compared to ~~$19.1~~$55.8 million, ~~a decrease~~an increase of ~~2.9%~~12.4%, or ~~$560 thousand.~~$7.0 million. The ~~decrease~~increase in non-interest income was mainly due ~~to:~~
·~~The termination~~to a gain on the sale of ~~the FDIC shared-loss agreement~~$672.2 million mortgage-backed securities during the ~~first quarter~~period of ~~2017 resulting in the recognition of a $1.4 million gain during such period.~~
$8.3 million. The ~~decrease~~increase in non-interest income was partially offset ~~by:~~
·~~An increase~~by a decrease in mortgage banking activities of ~~$1.2~~$1.0 million, mainly reflecting ~~$881 thousand from~~lower mortgage servicing ~~and $407 thousand from decrease in repurchased loans~~.fees.

86106
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 3 - NON-INTEREST EXPENSES SUMMARY

Quarter Ended March 31,
Quarter Ended September 30,

Nine-Month Period Ended September 30,

2019

2018

Variance %
2019

2018

Variance %

2019

2018

Variance %

(Dollars in thousands)
(Dollars in thousands)
Compensation and employee benefits
$
20,341

$
20,608

-1.3%
$
20,500

$
18,495

10.8%

$
60,716

$
57,202

6.1%
Occupancy, equipment and infrastructure costs

7,746

7,768

-0.3%

7,307

8,388

-12.9%

22,564

25,322

-10.9%
Electronic banking charges

5,065

4,966

2.0%

5,505

5,586

-1.5%

15,698

15,968

-1.7%
Professional and service fees

3,662

3,077

19.0%

10,297

8,917

15.5%
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses

3,366

3,645

-7.7%

2,889

3,946

-26.8%

8,839

9,880

-10.5%
Professional and service fees

3,208

2,694

19.1%
Information technology expenses

2,507

2,009

24.8%

2,247

2,056

9.3%

6,953

6,064

14.7%
Taxes, other than payroll and income taxes

2,154

2,260

-4.7%

2,235

2,175

2.8%

6,530

6,820

-4.3%
Advertising, business promotion, and strategic initiatives

1,211

1,347

-10.1%

1,333

1,329

0.3%

3,859

3,700

4.3%
Loan servicing and clearing expenses

1,209

1,161

4.1%

1,194

1,251

-4.6%

3,562

3,639

-2.1%
Insurance

1,146

1,478

-22.5%
Merger and restructuring charges

1,556

-

100.0%

2,556

-

100.0%
Communication

741

885

-16.3%

956

927

3.1%

2,556

2,627

-2.7%
Printing, postage, stationery and supplies

578

644

-10.2%

672

499

34.7%

1,885

1,748

7.8%
Insurance

(366)

1,620

-122.6%

2,057

4,580

-55.1%
Director and investor relations

230

240

-4.2%

374

223

67.7%

934

800

16.8%
Other

2,650

2,416

9.7%

663

1,369

-51.6%

5,325

8,095

-34.2%
Total non-interest expenses
$
52,152

$
52,121

0.1%
$
50,727

$
50,941

-0.4%

$
154,331

$
155,362

-0.7%
Relevant ratios and data:

Efficiency ratio

52.50%

56.51%

51.11%

50.58%

51.83%

53.77%

Compensation and benefits to
non-interest expense

39.00%

39.54%

40.41%

36.31%

39.34%

36.82%

Compensation to average total assets owned

1.23%

1.32%

1.27%

1.14%

1.24%

1.20%

Average number of employees

1,394

1,367

1,436

1,365

1,436

1,365

Average compensation per employee
$
14.59

$
15.08

$
14.28

$
13.55

$
42.28

$
41.91

Average loans per average employee
$
3,245

$
3,061

$
3,161

$
3,234

$
3,147

$
3,155

87107
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Non-Interest Expenses

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

Non-interest expense was ~~$52.2~~$50.7 million, representing ~~an increase~~a decrease of ~~0.1%~~.0.4% compared to ~~$52.1~~$50.9 million.

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

Lower insurance expenses by $2.0 million, mainly driven by a $1.5 million insurance assessment credit from the savings association insurance fund (SAIF);
·~~Higher professional~~Lower occupancy, equipment and ~~service fees~~infrastructure costs by ~~$514 thousand,~~$1.1 million, mainly attributed lower rent expenses due to ~~higher consulting~~the termination of several lease contracts and ~~advisory expenses~~the closure of branches in 2018; ~~and~~

Lower other non-interest expense by $705 thousand mainly related to lower claims and settlement accruals and lower allowances than prior year quarter; and
·~~Higher information technology~~Lower credit related expenses by ~~$498~~$641 thousand, mainly attributed to ~~higher data processing charges.~~lower foreclosure and repossession expenses.
The ~~increases~~decreases in the foregoing non-interest expenses were offset by:
·~~Lower insurance expenses by $332 thousand mainly related to a decrease in the FDIC Deposit Insurance Assessment (SAIF); and~~
·~~Lower~~Higher compensation and employee benefits by ~~$267 thousand,~~$2.0 million, mainly due to ~~a decrease~~an increase in ~~variable compensation.~~average employees; and
Merger and restructuring charges incurred in the quarter amounting to $1.6 million related to the agreements with the Bank Nova Scotia to acquire its Puerto Rico and US Virgin Islands operations.

The efficiency ratio ~~improved~~was 51.11% from ~~56.51% to 52.50%~~50.58%. 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, 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 ~~March 31,~~September 30, 2019 and 2018 amounted to ~~$103~~$3.6 million and $174 thousand, ~~and $275 thousand,~~ respectively.

Comparison of ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 ~~and 2017~~

Non-interest expense was ~~$52.1~~$154.3 million, representing a ~~slight increase~~decrease of ~~0.8%~~0.7% compared to ~~$51.7~~$155.4 million.

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

·~~Higher~~Lower other operating ~~expense~~expenses by ~~$754 thousand, particularly~~$2.8 million, mainly attributed to ~~an increase in~~higher claims and settlements accruals and other losses, and to minor repairs to physical assets related to the impact of hurricanes during the ~~hurricanes; and~~year ago period, which were not present in 2019;

·~~Higher~~Lower occupancy, equipment and ~~equipment~~infrastructure costs by $2.8 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; and
Lower insurance expenses by ~~$568 thousand, primarily due to an increase in rent expenses~~$2.5 million, mainly driven by ~~less rent income~~a $1.5 million SAIF insurance assessment credit and ~~to an increase in internet services.~~lower assessment rate.

The ~~increases~~decreases in the foregoing non-interest expenses were partially offset by:
Higher compensation and employee benefits by $3.5 million, mainly due to an increase in average employees;
·Merger and restructuring charges incurred amounting to $2.6 million related to the agreements with The Bank Nova Scotia on June 26, 2019 to acquire its Puerto Rico and US Virgin Islands operations; and
~~Lower~~OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Higher professional and service fees by ~~$543 thousand as a result lower~~$1.4 million, mainly consulting and advisory ~~expenses; and~~fees.
·~~Lower credit related expenses by $207 thousand, mainly due to a decrease in legal expenses from foreclosures of $249 thousand.~~

The efficiency ratio ~~increased~~improved to ~~56.51%~~51.83% from ~~56.15%~~53.77%. Amounts presented as part of non-interest income that are excluded from efficiency ratio computation for the ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 ~~and 2017~~ amounted to ~~$275~~$8.6 million and $758 thousand, ~~and $1.6 million,~~ respectively.

Oriental implemented its disaster response plan as hurricanes Irma and Maria approached its service areas. To operate in disaster response mode, Oriental incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security services, property damages, and emergency communication with customers regarding the status of Bank operations. Estimated losses at December 31, 2017 amounted to $6.6 million. No additional losses have been incurred at March 31, 2018.
88
Oriental maintains insurance for casualty losses as well as for disaster response costs and certain revenue lost through business interruption. Oriental received a $1.0 million partial payment from the insurance company in December 2017, a $0.7 million payment during the first quarter of 2018, and the final payment of $0.5 million during the fourth quarter of 2018.
Provision for Loan and Lease Losses

Comparison of quarters ended ~~March 31,~~September 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 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, ~~decreased 20.8%, or $3.2~~net increased $29.2 million from $14.6 million to ~~$12.2 million.The decrease in the provision was mostly due to:~~$43.8 million, resulting from:

·~~A decrease~~Increase of $39.0 million primarily from deciding to sell $95.0 million in ~~the provision~~unpaid principal balance of ~~originated loan~~non-performing commercial and ~~lease losses for the amount~~mortgage loans, both acquired and originated;
Decrease of $2.4 million ~~is attributable~~from the proceeds of the sale of $26.0 million of previously charged off auto and consumer loans;
Decrease of $4.5 million from the adjustment to qualitative factors of the ~~change in environmental factors; and~~
·~~A decrease in the provision of acquired Eurobank loan and lease losses of $790 thousand mainly due to better cash flows than expected.~~
~~The decreases in the provision~~allowance for loan and lease losses, ~~were partially offset by:~~reflecting sustained favorable macroeconomic conditions in Puerto Rico; and
·~~An increase~~Decrease of ~~$1.2~~$2.9 million ~~in the provision of acquired BBVA loan and lease losses due to impairments in the residential portfolio.~~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 ~~quarters~~nine-month periods ended ~~March 31,~~September 30, 2019 and 2018 ~~and 2017~~

Based on an analysis of the credit quality and the composition of Oriental’s loan portfolio, management determined that the provision for the ~~quarter~~nine-month period 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 12.4%, or $2.2~~increased $28.9 million to ~~$15.5 million. The decrease~~$73.7 million reflecting:
Increase of $39.0 million primarily from deciding to sell $95.0 million in ~~the provision was mostly due to:~~
·~~A decrease in the provision for~~unpaid principal balance of non-performing commercial and mortgage loans, both acquired ~~BBVAPR loan~~ and ~~lease losses~~originated;
Decrease of ~~$3.9~~$2.4 million ~~mainly due to an additional provision recognized during the year ago quarter~~ from the ~~periodic assessment~~proceeds of ~~loans remaining in these portfolios.~~
~~The decrease in~~ the ~~provision~~sale of $26.0 million of previously charged off auto and consumer loans; and
Decrease of $4.5 million from the adjustment to qualitative factors of the allowance for loan and lease losses, ~~was partially offset by:~~reflecting sustained favorable macroeconomic conditions in Puerto Rico.
·~~An increase~~Decrease of ~~$8.6~~$3.2 million to replenish the allowance for loan charge-offs of $8.2 million related to the hurricanes. It also included an increase in the allowance related to auto loan portfolio growth and one commercial loan placed in non-accrual.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.
Income Taxes
89109
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Comparison of quarters ended ~~March 31,~~September 30, 2019 and 2018
Income tax expense was $1.0 million, compared to $12.3 million, reflecting a decrease in the effective income tax rate to 12.0% for the quarter ended September 30, 2019 as a result of a decrease in the estimated annual effective income tax rate to 30.5%.
Comparison of nine-month periods ended September 30, 2019 and 2018

Income tax expense was ~~$11.6~~$23.5 million, compared to ~~$8.0~~$29.9 million, reflecting a decrease in the effective income tax rate ~~of 33.0% and the net income before income taxes of $35.0 million for the first quarter of 2019.~~
~~Comparison of quarters ended March 31, 2018 and 2017~~
~~Income tax expense was $8.0 million, compared~~ to ~~$9.2 million, reflecting the effective income tax rate of 32.0% and the net income before income taxes of $24.9 million for 2018,~~30.5%, mainly due to a higher proportion of exempt income and income subject to preferential rates.

Business Segments
Oriental segregates its businesses into the following major reportable segments: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of 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 nine-month periods ended ~~March 31,~~ September 30, 2019 and 2018.

90110
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quarter Ended March 31, 2019
Quarter Ended September 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
$
83,516

$
18

$
11,176

$
94,710

$
-

$
94,710
$
85,147

$
16

$
8,492

$
93,655

$
-

$
93,655
Interest expense

(8,636)

-

(4,285)

(12,921)

-

(12,921)

(9,260)

-

(3,685)

(12,945)

-

(12,945)
Net interest income

74,880

18

6,891

81,789

-

81,789

75,887

16

4,807

80,710

-

80,710
Provision for loan and lease losses

(12,207)

-

(42)

(12,249)

-

(12,249)

(43,678)

-

(92)

(43,770)

-

(43,770)
Non-interest income

11,656

5,984

16

17,656

-

17,656

11,946

6,719

3,513

22,178

-

22,178
Non-interest expenses

(46,483)

(4,327)

(1,342)

(52,152)

-

(52,152)

(46,555)

(3,450)

(722)

(50,727)

-

(50,727)
Intersegment revenue

554

-

-

554

(554)

-

507

-

-

507

(507)

-
Intersegment expenses

-

(174)

(380)

(554)

554

-

-

(141)

(366)

(507)

507

-
Income before income taxes
$
28,400

$
1,501

$
5,143

$
35,044

$
-

$
35,044
$
(1,893)

$
3,144

$
7,140

$
8,391

$
-

$
8,391
Income tax expense

10,650

563

361

11,574

-

11,574

(738)

1,226

520

1,008

-

1,008
Net income
$
17,750

$
938

$
4,782

$
23,470

$
-

$
23,470
$
(1,155)

$
1,918

$
6,620

$
7,383

$
-

$
7,383
Total assets
$
5,862,487

$
25,425

$
1,742,557

$
7,630,469

$
(1,027,278)

$
6,603,191
$
5,919,877

$
26,596

$
1,465,329

$
7,411,802

$
(1,078,297)

$
6,333,505

Quarter Ended March 31, 2018
Nine-Month Period Ended September 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
$
74,374

$
12

$
8,784

$
83,170

$
-

$
83,170
$
253,138

$
53

$
29,429

$
282,620

$
-

$
282,620
Interest expense

(6,290)

-

(2,886)

(9,176)

-

(9,176)

(27,083)

-

(11,953)

(39,036)

-

(39,036)
Net interest income

68,084

12

5,898

73,994

-

73,994

226,055

53

17,476

243,584

-

243,584
Provision for loan and lease losses

(15,455)

-

(5)

(15,460)

-

(15,460)

(73,560)

-

(164)

(73,724)

-

(73,724)
Non-interest income

12,193

6,308

13

18,514

-

18,514

34,932

19,537

8,313

62,782

-

62,782
Non-interest expenses

(48,081)

(3,286)

(754)

(52,121)

-

(52,121)

(139,384)

(11,675)

(3,272)

(154,331)

-

(154,331)
Intersegment revenue

361

-

-

361

(361)

-

1,648

-

-

1,648

(1,648)

-
Intersegment expenses

-

(179)

(182)

(361)

361

-

-

(480)

(1,168)

(1,648)

1,648

-
Income before income taxes
$
17,102

$
2,855

4,970

$
24,927

$
-

$
24,927
$
49,691

$
7,435

21,185

$
78,311

$
-

$
78,311
Income tax expense (benefit)

6,670

1,113

227

8,010

-

8,010

18,634

2,788

2,057

23,479

-

23,479
Net income
$
10,432

$
1,742

$
4,743

$
16,917

$
-

$
16,917
$
31,057

$
4,647

$
19,128

$
54,832

$
-

$
54,832
Total assets
$
5,661,759

$
28,377

$
1,529,912

$
7,220,048

$
(972,927)

$
6,247,121
$
5,919,877

$
26,596

$
1,465,329

$
7,411,802

$
(1,078,297)

$
6,333,505

91111

Quarter Ended September 30, 2018




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
83,664

$
9

$
10,464

$
94,137

$
-

$
94,137
Interest expense

(7,701)

-

(4,159)

(11,860)

-

(11,860)
Net interest income

75,963

9

6,305

82,277

-

82,277
Provision for
   loan and lease losses

(14,478)

-

(123)

(14,601)

-

(14,601)
Non-interest income

12,157

6,463

-

18,620

-

18,620
Non-interest expenses

(46,049)

(3,720)

(1,172)

(50,941)

-

(50,941)
Intersegment revenue

616

-

-

616

(616)

-
Intersegment expenses

-

(273)

(343)

(616)

616

-
Income before income taxes
$
28,209

$
2,479

$
4,667

$
35,355

$
-

$
35,355
Income tax expense

11,001

967

287

12,255

-

12,255
Net income
$
17,208

$
1,512

$
4,380

$
23,100

$
-

$
23,100
Total assets
$
6,156,500

$
25,243

$
1,459,682

$
7,641,425

$
(984,751)

$
6,656,674

Nine-Month Period Ended September 30, 2018




Wealth



Total Major



Consolidated

Banking

Management

Treasury

Segments

Eliminations

Total

(In thousands)
Interest income
$
236,171

$
35

$
29,107

$
265,313

$
-

$
265,313
Interest expense

(21,123)

-

(10,331)

(31,454)

-

(31,454)
Net interest income

215,048

35

18,776

233,859

-

233,859
Provision for loan and lease losses

(44,677)

-

(131)

(44,808)

-

(44,808)
Non-interest income

36,590

19,219

28

55,837

-

55,837
Non-interest expenses

(140,239)

(12,288)

(2,835)

(155,362)

-

(155,362)
Intersegment revenue

1,519

-

-

1,519

(1,519)

-
Intersegment expenses

-

(660)

(859)

(1,519)

1,519

-
Income before income taxes
$
68,241

$
6,306

$
14,979

$
89,526

$
-

$
89,526
Income tax expense

26,614

2,459

787

29,860

-

29,860
Net income
$
41,627

$
3,847

$
14,192

$
59,666

$
-

$
59,666
Total assets
$
6,156,500

$
25,243

$
1,459,682

$
7,641,425

$
(984,751)

$
6,656,674
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Comparison of quarters ended ~~March 31,~~September 30, 2019 and 2018

Banking

Oriental's banking segment net income before taxes ~~increased $11.3~~decreased $30.1 million from ~~$17.1~~$28.2 million to ~~$28.4~~a loss of $1.9 million, mainly reflecting:

·         ~~Higher~~Increase in provision for loan and lease losses of $29.2 million related to a $39.0 million increase primarily from deciding to sell non-performing commercial and mortgage loans, $2.4 million decrease from the proceeds of the sale of previously charged off auto and consumer loans, $4.5 million decrease from the adjustment to qualitative factors of the allowance for loan and lease losses, and $2.9 million decrease to reflecting improved asset quality;
·Increase in interest expense of $1.6 million, mainly from an increase in the cost deposits by $1.9 million; and
·Increase in interest income of $1.5 million, mainly due to $5.9 million increase from originated loans ~~of $13.0 million due to~~reflecting higher balances in commercial, consumer and ~~interest rates, offset by~~auto portfolios and a ~~decrease of $3.5~~$4.2 million ~~in interest income~~decrease from acquired loans as such loans continue to be ~~repaid;~~repaid
·.~~A decrease in the provision of originated loan and lease losses for the amount of $2.4 million is attributable to the change in environmental factors;~~
·~~Increase in interest expense of $2.3 million mainly from increase in cost of deposits.~~
~~Wealth Management~~

Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, decreased $1.4 million to $1.5 million mainly from the increase in the reasonable estimate accrual of claims and settlements in the broker-dealer subsidiary by $547 thousand and higher compensation expense by $285 thousand.
~~Treasury~~
~~Treasury segment net income before taxes decreased $173 thousand from $5.0 million to $5.1 million, reflecting:~~
·~~Higher interest income from investment of $2.4 million due to increases in interest rates and volume of investments;~~
·~~Higher interest expense of $1.4 million due to increase in volume and cost of repurchase agreements by $827 thousand and $882 thousand, respectively.~~
92
~~Comparison of quarters ended March 31, 2018 and 2017~~
~~Banking~~
~~Oriental's banking segment net income before taxes decreased $3.6 million to $17.1 million, reflecting:~~
·~~A decrease in net interest income by $2.7 million, mainly from the acquired BBVAPR and Eurobank loan portfolios as such loans continue to be repaid;~~
·Lower provision for loan and lease losses by $2.2 million, mainly from acquired loans due to an additional provision recognized during the year ago quarter from the periodic assessment of loans remaining in these portfolios;
·~~Lower non-interest income by $1.0 million, reflecting the termination of the FDIC shared-loss agreement in the first quarter of 2017; and~~
·Higher non-interest expenses by $2.0 million mainly as a result of higher occupancy and equipment expenses, primarily due to an increase in rent expenses driven by less rent income and to an increase in internet services and other expenses.

Wealth Management

Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, increased ~~$1.4~~$665 thousand to $3.1 million, mainly from a decrease in non-interest expenses of $270 thousand and an increase in non-interest income of $256 thousand.
Treasury
Treasury segment net income before taxes increased $2.5 million from $4.7 million to ~~$2.9~~$7.1 million, reflecting:
An increase of $3.5 million from a gain on the sale of $322.4 million mortgage-backed securities during the quarter; and
Decrease in net interest income of $1.5 million due to a decrease in investments volume by $1.3 million and rate by $943 thousand, partially offset by $1.0 million decrease in repurchase agreements volume.
Comparison of nine-month periods ended September 30, 2019 and 2018
Banking
Oriental's banking segment net income before taxes decreased $18.6 million to $49.7 million, reflecting:
·Increase in provision for loan and lease losses of $28.9 million related to a $39.0 million increase primarily from deciding to sell non-performing commercial and mortgage loans, $2.4 million decrease from the proceeds of the sale of previously charged off auto and consumer loans, $4.5 million decrease from the adjustment to qualitative factors of the allowance for loan and lease losses, and $3.2 million decrease to reflecting improved asset quality;
·Increase in interest expense of $6.0 million, mainly from an increase in the cost of customer deposits by $6.0 million;
·Increase in interest income of $17.0 million, mainly due to a $29.0 million increase from originated loans reflecting higher ~~income by $380~~balances in commercial, consumer and auto portfolios and a $11.1 million decrease from acquired loans as such loans continue to be repaid; and
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
·Decrease in mortgage banking activities of $1.0 million, 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 $1.1 million to $7.4 million, mainly due to a decrease in non-interest expenses of $613 thousand mainly from ~~changes~~lower legal expenses related to claims and settlement accruals, and an increase of $318 thousand in ~~volume and market rates, and lower expenses by $934 thousand from lower broker related expenses.~~non-interest income.

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, increased to ~~$5.0~~$21.2 million, compared to ~~$2.3~~$15.0 million, reflecting:

·         ~~Lower~~An increase of $8.3 million from a gain on the sale of $672.2 million in mortgage-backed securities in 2019; and
Increase in interest ~~expenses on securities sold under agreements~~expense of $1.6 million, $1.1 million corresponding to ~~repurchase due to decreases~~an increase in volume and interest rate of $1.8 million and $344 thousand, respectively, mainly as a result of (i) the repayment at maturity of a $232.0 million repurchase agreement at 4.78% in March 2017, and (ii) the unwinding of $100.0 million repurchase agreements ~~in June 2017.~~rate.
93
ANALYSIS OF FINANCIAL CONDITION

Assets Owned

At ~~March 31,~~September 30, 2019, Oriental’s total assets amounted to ~~$6.603~~$6.334 billion representing ~~an increase~~a decrease of ~~0.3%~~3.8% when compared to $6.583 billion at December 31, 2018. ~~This increase~~Investments decreased $749.9 million, loans decreased $24.4 million and cash increased $514.8 million.
In January 1, 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 nine-month period ended September 30, 2019 Oriental sold $672.2 million of its available for sale mortgage-backed securities at a gain of $8.3 million in order to fund Oriental’s growth plans, including the Scotiabank Transaction. As a result of these sales, cash increased 115.2% to $961.8 million.
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 September 30, 2019, Oriental’s loan portfolio decreased 1.0%. Loan production during the nine-month period ended September 30, 2019, reached $894.4 million compared to $1.096 million in the year ago period, a 18.4% decrease, mainly ~~attributable~~from lower originations in the commercial and the US loan program portfolios. The non-acquired loan portfolio increased $46.4 million from December 31, 2018 to $3.791 billion at September 30, 2019. From December 31, 2018, the BBVAPR acquired loan portfolio decreased $106.3 million to $570.2 million and the Eurobank acquired loan portfolio decreased $7.6 million to $79.4 million at September 30, 2019. During the nine-month period ended September 30, 2019 Oriental decided to sell $168.8 million unpaid principal balance in non-performing mortgage and commercial loans, both acquired and originated, and recognized them at their fair value. Some of these loans were sold during the quarter ended September 30, 2019 and the rest are expected to be sold in the last quarter of 2019.
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 right-of-use asset and related lease liability for lease classified as operating leases, prospectively. At ~~March 31,~~September 30, 2019, the right of use assets ~~amounts $20.9~~amounted to $19.3 million. C~~ash and cash equivalents increased $59.0 million. Increases were offset by decreases in the loans and investments portfolios of $30.2 million and $27.0 million, respectively.~~
~~Cash and cash equivalents increased 13.2% to $506.0 million, mainly from higher core demand and savings deposits, offset by a decrease in brokered deposits and repayments of repurchase agreements.~~
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 March 31, 2019, Oriental’s loan portfolio decreased 0.7%. Loan production during the first quarter of 2019, reached $276.4 million compared to $309.4 million in the year ago quarter, a 10.7% decrease, mainly from lower originations in the US loan program. The non-acquired loan portfolio decreased $6.1 million from December 31, 2018 to $3.739 billion at March 31, 2019. From December 31, 2018, the BBVAPR acquired loan portfolio decreased $21.7 million to $654.5 million and the Eurobank acquired loan portfolio decreased $1.4 million to $85.7 million at March 31, 2019.
Investment securities available for sale increased 47.23% to $1.239 billion at March 31, 2019, mainly attributed to the reclassification of held-to-maturity securities into available-for-sale securities during the quarter amounting to $410.4 million (fair value at December 31, 2018), as a result of the adoption of ASU 2017-12.

Financial Assets Managed

114
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 ~~March 31,~~September 30, 2019, total assets managed by Oriental’s trust division and OPC amounted to ~~$2.926~~$2.980 billion, compared to $2.771 billion at December 31, 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 ~~March 31,~~September 30, 2019, total assets gathered by Oriental Financial Services and Oriental Insurance from its customer investment accounts amounted to ~~$2.303~~$2.349 billion, compared to $2.116 billion at December 31, 2018. Changes in trust and broker-dealer related assets primarily reflect changes in portfolio balances and differences in market values.

Goodwill

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

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

94
Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount may include macroeconomic conditions (such as a further deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, or similar events. Oriental’s loan portfolio, which is the largest component of its interest-earning assets, is concentrated in Puerto Rico and is directly affected by adverse local economic and fiscal conditions. Such conditions have generally affected the market demand for non-conforming loans secured by assets in Puerto Rico and, therefore, affect the valuation of Oriental’s assets.

As of ~~March 31,~~September 30, 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 2018, based on its annual goodwill impairment test, Oriental determined that both units passed step one of the two-step impairment test. As a result of step one, the fair value of both units exceeded its adjusted net book value. Accordingly, 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. There were no events that caused Oriental to perform interim testing in Q1the quarter ended September 30, 2019.
95115
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 4 - ASSETS SUMMARY AND COMPOSITION

March 31

December 31,

Variance
September 30

December 31,

Variance

2019

2018

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Investments:

FNMA and FHLMC certificates
$
937,278

$
978,071

-4.2%
$
424,169

$
978,071

-56.6%
Obligations of US government-sponsored agencies

2,197

2,265

-3.0%

2,028

2,265

-10.5%
US Treasury securities

10,859

10,805

0.5%

10,939

10,805

1.2%
CMOs issued by US government-sponsored agencies

61,389

64,064

-4.2%

55,103

64,064

-14.0%
GNMA certificates

226,557

210,169

7.8%

25,831

210,169

-87.7%
FHLB stock

12,800

12,644

1.2%

10,525

12,644

-16.8%
Other debt securities

1,189

1,222

-2.7%

1,025

1,222

-16.1%
Other investments

384

364

5.5%

98

364

-73.1%
Total investments

1,252,653

1,279,604

-2.1%

529,718

1,279,604

-58.6%
Loans

4,401,401

4,431,594

-0.7%

4,407,190

4,431,594

-0.6%
Total investments and loans

5,654,054

5,711,198

-1.0%

4,936,908

5,711,198

-13.6%
Other assets:

Cash and due from banks (including restricted cash)

501,357

445,133

12.6%

954,852

445,133

114.5%
Money market investments

7,665

4,930

55.5%

8,035

4,930

63.0%
Foreclosed real estate

30,865

33,768

-8.6%

26,952

33,768

-20.2%
Accrued interest receivable

33,152

34,254

-3.2%

30,470

34,254

-11.0%
Deferred tax asset, net

112,744

113,763

-0.9%

112,602

113,763

-1.0%
Premises and equipment, net

69,017

68,892

0.2%

69,754

68,892

1.3%
Servicing assets

10,623

10,716

-0.9%

10,125

10,716

-5.5%
Derivative assets

110

347

-68.3%

13

347

-96.3%
Goodwill

86,069

86,069

0.0%

86,069

86,069

0.0%
Right of use assets

20,860

-

100.0%

19,318

-

100.0%
Other assets and customers' liability on acceptances

76,675

74,282

3.2%

78,407

74,282

5.6%
Total other assets

949,137

872,154

8.8%

1,396,597

872,154

60.1%
Total assets
$
6,603,191

$
6,583,352

0.3%
$
6,333,505

$
6,583,352

-3.8%
Investment portfolio composition:

FNMA and FHLMC certificates

74.8%

76.5%

80.0%

76.5%

Obligations of US government-sponsored agencies

0.2%

0.2%

0.4%

0.2%

US Treasury securities

0.9%

0.8%

2.1%

0.8%

CMOs issued by US government-sponsored agencies

4.9%

5.0%

10.4%

5.0%

GNMA certificates

18.1%

16.4%

4.9%

16.4%

FHLB stock

1.0%

1.0%

2.0%

1.0%

Other debt securities and other investments

0.1%

0.1%

0.2%

0.1%

100.0%

100.0%

100.0%

100.0%

96116
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 5 — LOANS RECEIVABLE COMPOSITION
TABLE 5 — LOANS RECEIVABLE COMPOSITION
TABLE 5 — LOANS RECEIVABLE COMPOSITION

March 31

December 31,

Variance
September 30

December 31,

Variance

2019

2018

%
2019

2018

%

(In thousands)

(In thousands)

Originated and other loans and leases held for investment:

Mortgage
$
651,423

$
668,809

-2.6%
$
589,383

$
668,809

-11.9%
Commercial

1,569,551

1,597,588

-1.8%

1,573,629

1,597,588

-1.5%
Consumer

350,543

348,980

0.4%

362,358

348,980

3.8%
Auto and leasing

1,167,482

1,129,695

3.3%

1,266,066

1,129,695

12.1%

3,738,999

3,745,072

-0.2%

3,791,436

3,745,072

1.2%
Allowance for loan and lease losses on originated and other loans and leases

(94,035)

(95,188)

-1.2%

(79,089)

(95,188)

-16.9%

3,644,964

3,649,884

-0.1%

3,712,347

3,649,884

1.7%
Deferred loan costs, net

8,254

7,740

6.6%

9,608

7,740

24.1%
Total originated and other loans held for investment, net

3,653,218

3,657,624

-0.1%

3,721,955

3,657,624

1.8%
Acquired loans:

Acquired BBVAPR loans:

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

acquired at a premium)

Commercial

2,405

2,546

-5.5%

2,217

2,546

-12.9%
Consumer

22,768

23,988

-5.1%

21,461

23,988

-10.5%
Auto

2,336

4,435

-47.3%

237

4,435

-94.7%

27,509

30,969

-11.2%

23,915

30,969

-22.8%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20

(1,968)

(2,062)

-4.6%

(1,490)

(2,062)

-27.7%

25,541

28,907

-11.6%

22,425

28,907

-22.4%
Accounted for under ASC 310-30 (Loans acquired with deteriorated

credit quality, including those by analogy)

Mortgage

484,578

492,890

-1.7%

439,675

492,890

-10.8%
Commercial

176,908

182,319

-3.0%

155,653

182,319

-14.6%
Auto

9,866

14,403

-31.5%

3,883

14,403

-73.0%

671,352

689,612

-2.6%

599,211

689,612

-13.1%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30

(42,133)

(42,010)

0.3%

(51,394)

(42,010)

22.3%

629,219

647,602

-2.8%

547,817

647,602

-15.4%
Total acquired BBVAPR loans, net

654,760

676,509

-3.2%

570,242

676,509

-15.7%
Acquired Eurobank loans:

Loans secured by 1-4 family residential properties

62,649

63,392

-1.2%

54,603

63,392

-13.9%
Commercial

46,588

47,826

-2.6%

46,412

47,826

-3.0%
Consumer

856

846

1.2%

802

846

-5.2%

110,093

112,064

-1.8%

101,817

112,064

-9.1%
Allowance for loan and lease losses on Eurobank loans

(24,352)

(24,971)

-2.5%

(22,370)

(24,971)

-10.4%
Total acquired Eurobank loans, net

85,741

87,093

-1.6%

79,447

87,093

-8.8%
Total acquired loans, net

740,501

763,602

-3.0%

649,689

763,602

-14.9%
Total held for investment, net

4,393,719

4,421,226

-0.6%

4,371,644

4,421,226

-1.1%
Mortgage loans held for sale

7,682

10,368

-25.9%

23,504

10,368

126.7%
Other loans held for sale

12,042

-

100.0%
Total loans, net
$
4,401,401

$
4,431,594

-0.7%
$
4,407,190

$
4,431,594

-0.6%
97117
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans. Acquired Eurobank loans were purchased subject to loss-sharing agreements with the FDIC, which were terminated ~~on February 6,~~by the first quarter of 2017.

As shown in Table 5 above, total loans, net, amounted to ~~$4.401~~$4.407 billion at ~~March 31,~~September 30, 2019 and $4.432 billion at December 31, 2018. Oriental’s originated and other loans held-for-investment portfolio composition and trends were as follows:

·         Mortgage loan portfolio amounted to ~~$651.4~~$589.4 million ~~(17.4%~~(15.5% of the gross originated loan portfolio) compared to $668.8 million (17.9% of the gross originated loan portfolio) at December 31, 2018. Mortgage loan production totaled ~~$23.1~~$23.8 million and $69.1 million for ~~March 31,~~the quarter and nine-month period ended September 30, 2019, which represents a decrease of ~~13.3%~~14.6% and 20.0% from ~~$26.6~~$27.9 million and $86.3 million, respectively, for the same periods in 2018. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to ~~$12.9~~$11.4 million and $19.7 million at ~~March 31,~~September 30, 2019 and December 31, 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 ~~$1.570~~$1.574 billion ~~(42.0%~~(41.5% of the gross originated loan portfolio) compared to $1.598 billion (42.7% of the gross originated loan portfolio) at December 31, 2018. Commercial loan production, including the U.S. loan program production of ~~$31.7~~$12.2 million and $100.3 million, respectively, decreased ~~21.3%~~45.4% and 40.3% to ~~$92.2~~$77.9 million and $290.5 million, respectively, for the quarter and nine-month period ended September 30, 2019, from ~~$117.1~~$142.7 million and $486.7 million, for the same ~~period~~periods in 2018.

·         Consumer loan portfolio amounted to ~~$350.5~~$362.4 million ~~(9.4%~~(9.6% of the gross originated loan portfolio) compared to $349.0 million (9.3% of the gross originated loan portfolio) at December 31, 2018. Consumer loan production increased ~~9.0%~~12.2% and 11.4% to ~~$40.9~~$48.3 million and $136.8 million, respectively, for the quarter and nine-month period ended September 30, 2019 from ~~$37.5~~$43.0 million ~~when compared to~~and $122.8 million, respectively, for the same ~~period~~periods in 2018.

·         Auto and leasing portfolio amounted to ~~$1.167~~$1.266 billion ~~(31.2%~~(33.4% of the gross originated loan portfolio) compared to $1.130 million (30.1 of the gross originated loan portfolio) at December 31, 2018. Auto production ~~decreased by 6.2% to $120.2~~continued strong at $141.5 million and $398.0 million, respectively for the quarter and nine-month period ended September 30, 2019, compared to ~~$128.1~~$140.4 million and $399.6 million for the same ~~period~~periods in 2018.
98118
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS

March 31, 2019
September 30, 2019

Higher-Risk Residential Mortgage Loans*
Higher-Risk Residential Mortgage Loans*

High Loan-to-Value Ratio Mortgages

High Loan-to-Value Ratio Mortgages

Junior Lien Mortgages

Interest Only Loans

LTV 90% and over
Junior Lien Mortgages

Interest Only Loans

LTV 90% and over

Carrying

Carrying

Carrying

Carrying

Carrying

Carrying

Value

Allowance

Coverage

Value

Allowance

Coverage

Value

Allowance

Coverage
Value

Allowance

Coverage

Value

Allowance

Coverage

Value

Allowance

Coverage

(In thousands)
(In thousands)
Delinquency:

0 - 89 days
$
8,620

$
305

3.54%

$
7,545

$
84

1.11%

$
52,176

$
897

1.72%
$
7,702

$
210

2.73%

$
7,452

$
173

2.32%

$
66,198

$
1,695

2.56%
90 - 119 days

222

28

12.61%

-

-

0.00%

1,104

46

4.17%

302

23

7.62%

-

-

0.00%

1,917

88

4.59%
120 - 179 days

65

8

12.31%

-

-

0.00%

296

28

9.46%

93

-

0.00%

-

-

0.00%

902

28

3.10%
180 - 364 days

68

17

25.00%

164

23

14.02%

814

88

10.81%

30

-

0.00%

46

-

0.00%

2,151

47

2.19%
365+ days

182

25

13.74%

1,377

202

14.67%

6,428

522

8.12%

98

3

3.06%

743

28

3.77%

12,381

247

1.99%
Total
$
9,157

$
383

4.18%

$
9,086

$
309

3.40%

$
60,818

$
1,581

2.60%
$
8,225

$
236

2.87%

$
8,241

$
201

2.44%

$
83,549

$
2,105

2.52%
Percentage of total loans excluding
acquired loans accounted for under ASC 310-30

0.24%

0.24%

1.61%

0.22%

0.22%

2.19%

Refinanced or Modified Loans:

Amount
$
2,226

$
293

13.16%

$
533

$
71

13.32%

$
15,507

$
1,179

7.60%
$
2,140

$
201

9.39%

$
578

$
55

9.52%

$
30,747

$
1,795

5.84%
Percentage of Higher-Risk Loan
Category

24.31%

5.87%

25.50%

26.02%

7.01%

36.80%

Loan-to-Value Ratio:

Under 70%
$
6,068

$
245

4.04%

$
1,215

$
6

0.49%

$
-

$
-

-
$
5,456

$
140

2.57%

$
1,037

$
18

1.74%

$
-

$
-

-
70% - 79%

1,304

73

5.60%

1,914

34

1.78%

-

-

-

697

35

5.02%

1,712

29

1.69%

-

-

-
80% - 89%

994

1

0.10%

3,533

116

3.28%

-

-

-

1,447

45

3.11%

3,424

59

1.72%

-

-

-
90% and over

791

64

8.09%

2,424

153

6.31%

60,818

1,581

2.60%

625

16

2.56%

2,068

95

4.59%

83,549

2,105

2.52%

$
9,157

$
383

4.18%

$
9,086

$
309

3.40%

$
60,818

$
1,581

2.60%
$
8,225

$
236

2.87%

$
8,241

$
201

2.44%

$
83,549

$
2,105

2.52%

* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.
99119
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deposits from the Puerto Rico government totaled $228.8 million at March 31, 2019. The following table includes the maturities of Oriental's lending and investment exposure to the Puerto Rico government, which is limited solely to loans to municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations.
Deposits from the Puerto Rico government totaled $250.1 million at September 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.
Deposits from the Puerto Rico government totaled $250.1 million at September 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
TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES
TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES

March 31, 2019
September 30, 2019
September 30, 2019

Maturity

Maturity

Loans and Securities:

Carrying Value

Less than 1 Year

1 to 3 Years

More than 3 Years

Carrying Value

Less than 1 Year

1 to 3 Years

More than 3 Years

(In thousands)

(In thousands)
Municipalities

$
135,471

$
23,704

$
68,220

$
43,547

$
125,618

$
64,970

$
107

$
60,541
~~100~~120
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit Risk Management

Allowance for Loan and Lease Losses

Oriental maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. Oriental’s allowance for loan and lease losses ("ALLL") policy provides for a detailed quarterly analysis of probable losses.

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

At ~~March 31,~~September 30, 2019, Oriental’s allowance for loan and lease losses amounted to ~~$162.5~~$154.3 million, a ~~$1.7~~$9.9 million decrease from $164.2 million at December 31, 2018.

Tables 8 through 10 set forth an analysis of activity in the allowance for loan and lease losses and present selected loan loss statistics. In addition, Table 5 sets forth the composition of the loan portfolio.

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

Non-performing Assets

Oriental’s non-performing assets include non-performing loans and foreclosed real estate (see Tables 11 and 12). At ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental had ~~$122.7~~$73.4 million and $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 ~~March 31,~~September 30, 2019 and December 31, 2018, loans whose terms have been extended and which are classified as troubled-debt restructurings that are not included in non-performing assets amounted to ~~$113.1~~$103.8 million and $112.9 million, respectively.

At ~~March 31,~~September 30, 2019 and December 31, 2018, loans that are current in their monthly payments, but placed in non-accrual amounted to ~~$30.6~~$16.6 million and $21.2 million, respectively. During the ~~quarter~~nine-month period ended ~~March 31,~~September 30, 2019, a ~~$8.6~~$9.3 million loan that is current in its monthly payments was placed in non-accrual due to credit deterioration.

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due, but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans.
Acquired loans with credit deterioration are considered to be performing due to the application of the accretion method under ASC 310-30, in which these loans will accrete interest income over their remaining life using estimated cash flow analyses. Credit related decreases in expected cash flows, compared to those previously forecasted are recognized by recording a provision for credit losses on these loans when it is probable that all cash flows expected at acquisition will not be collected.

At ~~March 31,~~September 30, 2019, Oriental’s non-performing assets ~~increased~~decreased by ~~0.5%~~33.5% to ~~$162.1~~$107.3 million ~~(2.50%~~(1.93% of total assets, excluding acquired loans with deteriorated credit quality) from $161.3 million (2.76% of total assets, excluding acquired loans with deteriorated credit quality) at December 31, ~~2018.~~2018, mainly from deciding to sell mortgage and commercial loans, both originated and acquired, during the nine-month period ended September 30, 2019. Foreclosed real estate and other repossessed assets amounting to ~~$30.9~~$27.0 million and ~~$3.6~~$3.5 million, respectively, at ~~March 31,~~September 30, 2019, and $33.8 million and $3.0 million, respectively, at December 31, 2018, were recorded at fair value. Oriental does not expect non-performing loans to result in significantly higher losses. At ~~March 31,~~September 30, 2019, the allowance coverage ratio for originated loan and lease losses to non-performing loans was ~~74.53%~~104.39% (77.38% at December 31, 2018).

~~101~~121
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 ~~March 31,~~September 30, 2019, Oriental’s originated non-performing mortgage loans totaled ~~$59.7~~$21.1 million ~~(46.7%~~(27.5% of Oriental’s non-performing loans), a ~~6.4%~~66.8% decrease from $63.7 million (51.1% of Oriental’s non-performing loans) at December 31, 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 ~~March 31,~~September 30, 2019, Oriental’s originated non-performing commercial loans amounted to ~~$50.4~~$35.6 million ~~(39.5%~~(46.2% of Oriental’s non-performing loans), a ~~18.7% increase~~16.1% decrease from $42.5 million at December 31, 2018 (34.1% of Oriental’s non-performing loans). ~~This increase is mainly from a $8.6 million loan that is current in its monthly payments but was placed in non-accrual during the quarter ended March 31, 2019 due to credit deterioration.~~

Consumer loans — are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit. At ~~March 31,~~September 30, 2019, Oriental’s originated non-performing consumer loans amounted to $4.0 million ~~(3.1%~~(5.2% of Oriental’s non-performing loans), a ~~18.4%~~19.5% increase from $3.4 million at December 31, 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 ~~March 31,~~September 30, 2019, Oriental’s originated non-performing auto loans and leases amounted to ~~$12.2~~$15.0 million ~~(9.5%~~(19.6% of Oriental’s total non-performing loans), ~~a decrease~~an increase of ~~9.9%~~11.3% from $13.5 million at December 31, 2018 (10.8% of Oriental’s total non-performing loans)~~, mainly due to higher balance in the portfolio.~~.

Oriental has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-traditional Mortgage Loan Program. Both programs are intended to help responsible homeowners to remain in their homes and avoid foreclosure, while also reducing Oriental’s losses on non-performing mortgage loans.

The Loss Mitigation Program helps mortgage borrowers who are or will become financially unable to meet the current or scheduled mortgage payments. Loans that qualify under this program are those guaranteed by FHA, VA, RURAL, PRHFA, conventional loans guaranteed by Mortgage Guaranty Insurance Corporation (MGIC), conventional loans sold to FNMA and FHLMC, and conventional loans retained by Oriental. The program offers diversified alternatives such as regular or reduced payment plans, payment moratorium, mortgage loan modification, partial claims (only FHA), short sale, and payment in lieu of foreclosure.

The Non-traditional Mortgage Loan Program is for non-traditional mortgages, including balloon payment, interest only/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.
~~102~~122
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

March 31,

December 31,

Variance
September 30,

December 31,

Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Originated and other loans held for investment

Allowance balance:

Mortgage
$
16,689

$
19,783

-15.6%
$
8,391

$
19,783

-57.6%
Commercial

32,154

30,326

6.0%

22,323

30,326

-26.4%
Consumer

16,085

15,571

3.3%

15,328

15,571

-1.6%
Auto and leasing

29,107

29,508

-1.4%

33,047

29,508

12.0%
Total allowance balance
$
94,035

$
95,188

-1.2%
$
79,089

$
95,188

-16.9%
Allowance composition:

Mortgage

17.8%

20.8%

-14.6%

10.6%

20.8%

Commercial

34.2%

31.9%

7.3%

28.2%

31.9%

Consumer

17.1%

16.4%

4.6%

19.4%

16.4%

Auto and leasing

31.0%

31.0%

-0.2%

41.8%

31.0%

100.0%

100.0%

100.0%

100.0%

Allowance coverage ratio at end of period applicable to:

Mortgage

2.56%

2.96%

-13.5%

1.42%

2.96%

-52.0%
Commercial

2.05%

1.90%

7.9%

1.42%

1.90%

-25.3%
Consumer

4.59%

4.46%

2.9%

4.23%

4.46%

-5.2%
Auto and leasing

2.49%

2.61%

-4.6%

2.61%

2.61%

0.0%
Total allowance to total originated loans

2.51%

2.54%

-1.2%

2.09%

2.54%

-17.7%
Allowance coverage ratio to non-performing loans:

Mortgage

27.97%

31.05%

-9.9%

39.70%

31.05%

27.9%
Commercial

63.83%

71.43%

-10.6%

62.70%

71.43%

-12.2%
Consumer

405.06%

464.25%

-12.7%

382.44%

464.25%

-17.6%
Auto and leasing

239.31%

218.67%

9.4%

220.03%

218.67%

0.6%
Total

74.53%

77.38%

-3.7%

104.39%

77.38%

34.9%

~~103~~123
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)

March 31,

December 31,
Variance
September 30,

December 31,
Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Acquired BBVAPR loans accounted for under ASC 310-20

Allowance balance:

Commercial
$
32

$
22

45.5%
$
20

$
22

-9.1%
Consumer

1,869

1,905

-1.9%

1,448

1,905

-24.0%
Auto

67

135

-50.4%

22

135

-83.7%
Total allowance balance
$
1,968

$
2,062

-4.6%
$
1,490

$
2,062

-27.7%
Allowance composition:

Commercial

1.6%

1.1%

52.3%

1.3%

1.1%

Consumer

95.0%

92.4%

2.8%

97.2%

92.4%

Auto

3.4%

6.6%

-48.1%

1.5%

6.6%

100.0%

100.00%

100.0%

100.00%

Allowance coverage ratio at end of period applicable to:

Commercial

1.33%

0.86%

54.7%

0.90%

0.86%

4.7%
Consumer

8.21%

7.94%

3.4%

6.75%

7.94%

-15.0%
Auto

2.87%

3.04%

-5.6%

9.28%

3.04%

205.3%
Total allowance to total acquired loans

7.15%

6.66%

7.4%

6.23%

6.66%

-6.5%
Allowance coverage ratio to non-performing loans:

Commercial

3.43%

2.32%

47.8%

2.48%

2.32%

6.9%
Consumer

438.73%

478.64%

-8.3%

706.34%

478.64%

47.6%
Auto

67.00%

67.50%

-0.7%

50.00%

67.50%

-25.9%
Total

134.98%

133.20%

1.3%

140.96%

133.20%

5.8%

~~104~~124
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)

March 31,

December 31,
Variance
September 30,

December 31,
Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Acquired BBVAPR loans accounted for under ASC 310-30

Allowance balance:

Mortgage
$
17,901

$
15,225

17.6%
$
20,458

$
15,225

34.4%
Commercial

20,733

20,641

0.4%

28,647

20,641

38.8%
Auto

3,499

6,144

-43.1%

2,289

6,144

-62.7%
Total allowance balance
$
42,133

$
42,010

0.3%
$
51,394

$
42,010

22.3%
Allowance composition:

Mortgage

42.5%

36.2%

17.2%

39.8%

36.2%

Commercial

49.2%

49.1%

0.2%

55.8%

49.1%

Auto

8.3%

14.6%

-43.3%

4.5%

14.6%

100.0%

100.0%

100.0%

100.0%

Acquired Eurobank loans accounted for under ASC 310-30

Allowance balance:

Mortgage
$
15,110

$
15,382

-1.8%
$
13,809

$
15,382

-10.2%
Commercial

9,242

9,585

-3.6%

8,561

9,585

-10.7%
Consumer

-

4

-100.0%

-

4

-100.0%
Total allowance balance
$
24,352

$
24,971

-2.5%
$
22,370

$
24,971

-10.4%
Allowance composition:

Mortgage

62.1%

61.6%

0.7%

61.7%

61.6%

Commercial

37.9%

38.4%

-1.1%

38.3%

38.4%

Consumer

0.0%

0.0%

-100.0%

100.0%

100.0%

100.0%

100.0%

~~105~~125
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY

Quarter Ended September 30,

Nine-Month Period Ended September 30,


Variance

Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)
Originated and other loans:

    Balance at beginning of period
$
89,952

$
94,218

-4.5%

$
95,188

$
92,718

2.7%
      Charge-offs

(42,078)

(18,380)

128.9%

(77,503)

(55,403)

39.9%
      Recoveries

7,651

5,978

28.0%

18,026

16,702

7.9%
      Provision for loan and lease losses

23,564

13,420

75.6%

43,378

41,219

5.2%
    Balance at end of period
$
79,089

$
95,236

-17.0%

$
79,089

$
95,236

-17.0%
Acquired loans:

BBVAPR loans

Acquired loans accounted for
   under ASC 310-20:

    Balance at beginning of period
$
1,685

$
2,726

-38.2%

$
2,062

$
3,862

-46.6%
      Charge-offs

(341)

(711)

-52.0%

(1,435)

(2,371)

-39.5%
      Recoveries

282

267

5.6%

566

902

-37.3%
      Provision (recapture) for loan and lease losses

(136)

68

-300.0%

297

(43)

-790.7%
    Balance at end of period
$
1,490

$
2,350

-36.6%

$
1,490

$
2,350

-36.6%
Acquired loans accounted for
   under ASC 310-30:

    Balance at beginning of period
$
45,427

$
44,176

2.8%

$
42,010

$
45,755

-8.2%
      Provision for loan and lease losses

19,271

807

2288.0%

27,852

2,528

1001.7%
      Allowance de-recognition

(13,304)

(1,108)

1100.7%

(18,468)

(4,408)

319.0%
    Balance at end of period
$
51,394

$
43,875

17.1%

$
51,394

$
43,875

17.1%

Eurobank loans

    Balance at beginning of period
$
25,578

$
24,314

5.2%

$
24,971

$
25,174

-0.8%
      Provision for loan and lease losses

1,071

306

250.0%

2,197

1,110

97.9%
      Allowance de-recognition

(4,279)

(339)

1162.2%

(4,798)

(2,003)

139.5%
    Balance at end of period
$
22,370

$
24,281

-7.9%

$
22,370

$
24,281

-7.9%
126
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY

Quarter Ended March 31,


Variance

2019

2018

%

(Dollars in thousands)
Originated and other loans:

    Balance at beginning of period
$
95,188

$
92,718

2.7%
      Provision for loan and lease losses

11,333

14,958

-24.2%
      Charge-offs

(17,165)

(15,357)

11.8%
      Recoveries

4,679

4,513

3.7%
    Balance at end of period
$
94,035

$
96,832

-2.9%
Acquired loans:

BBVAPR loans

Acquired loans accounted for
   under ASC 310-20:

    Balance at beginning of period
$
2,062

$
3,862

-46.6%
      Provision (recapture) for loan and lease losses

298

184

62.0%
      Charge-offs

(525)

(1,147)

-54.2%
      Recoveries

133

285

-53.3%
    Balance at end of period
$
1,968

$
3,184

-38.2%
Acquired loans accounted for
   under ASC 310-30:

    Balance at beginning of period
$
42,010

$
45,755

-8.2%
      Provision for loan and lease losses

1,269

179

608.9%
      Allowance de-recognition

(1,146)

(2,768)

-58.6%
    Balance at end of period
$
42,133

$
43,166

-2.4%

Eurobank loans

    Balance at beginning of period
$
24,971

$
25,174

-0.8%
      Provision for loan and lease losses

(651)

139

-568.3%
      Allowance de-recognition

32

97

-67.0%
    Balance at end of period
$
24,352

$
25,410

-4.2%
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30

Quarter Ended September 30,

Nine-Month Period Ended September 30,

Variance

Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)
Originated and other loans and leases:

Mortgage

    Charge-offs
$
(16,299)

$
(1,429)

1040.6%

$
(17,490)

$
(3,727)

369.3%
    Recoveries

493

139

254.7%

1,096

919

19.3%
        Total

(15,806)

(1,290)

1125.3%

(16,394)

(2,808)

483.8%
Commercial

    Charge-offs

(8,402)

(3,249)

158.6%

(11,634)

(6,396)

81.9%
    Recoveries

174

119

46.2%

497

528

-5.9%
        Total

(8,228)

(3,130)

162.9%

(11,137)

(5,868)

89.8%
Consumer

    Charge-offs

(5,046)

(4,591)

9.9%

(14,005)

(13,438)

4.2%
    Recoveries

1,260

278

353.2%

1,850

757

144.4%
        Total

(3,786)

(4,313)

-12.2%

(12,155)

(12,681)

-4.1%
Auto

    Charge-offs

(12,331)

(9,111)

35.3%

(34,374)

(31,842)

8.0%
    Recoveries

5,724

5,442

5.2%

14,583

14,498

0.6%
        Total

(6,607)

(3,669)

80.1%

(19,791)

(17,344)

14.1%
Net credit losses

    Total charge-offs

(42,078)

(18,380)

128.9%

(77,503)

(55,403)

39.9%
    Total recoveries

7,651

5,978

28.0%

18,026

16,702

7.9%
        Total
$
(34,427)

$
(12,402)

177.6%

$
(59,477)

$
(38,701)

53.7%
Net credit losses to average
    loans outstanding:

    Mortgage

10.14%

0.77%

1216.9%

3.43%

0.55%

523.6%
    Commercial

2.06%

0.83%

148.2%

0.93%

0.55%

69.1%
    Consumer

4.00%

4.74%

-15.6%

4.34%

4.69%

-7.5%
    Auto

2.10%

1.39%

51.1%

2.19%

2.32%

-5.6%
        Total

3.57%

1.38%

158.7%

1.75%

1.20%

46.0%
Recoveries to charge-offs

18.18%

32.52%

-44.1%

23.26%

30.15%

-22.9%
Average originated loans:

    Mortgage
$
623,772

667,372

-6.5%

$
637,680

675,191

-5.6%
    Commercial

1,597,902

1,512,661

5.6%

1,588,887

1,411,414

12.6%
    Consumer

378,967

363,884

4.1%

373,644

360,258

3.7%
    Auto

1,258,394

1,057,232

19.0%

1,206,054

996,972

21.0%
        Total
$
3,859,035

$
3,601,149

7.2%

$
3,806,265

$
3,443,835

10.5%
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 September 30,

Nine-Month Period Ended September 30,

Variance

Variance

2019

2018

%

2019

2018

%

(Dollars in thousands)
Acquired loans accounted for under ASC 310-20:

Commercial

    Charge-offs
$
(19)

$
(1)

1800.0%

$
(99)

$
(6)

1550.0%
    Recoveries

1

3

-66.7%

6

18

-66.7%
        Total

(18)

2

-1000.0%

(93)

12

-875.0%
Consumer

    Charge-offs

(270)

(638)

-57.7%

(1,143)

(2,080)

-45.0%
    Recoveries

203

95

113.7%

321

243

32.1%
        Total

(67)

(543)

-87.7%

(822)

(1,837)

-55.3%
Auto

    Charge-offs

(52)

(72)

-27.8%

(193)

(285)

-32.3%
    Recoveries

78

169

-53.8%

239

641

-62.7%
        Total

26

97

-73.2%

46

356

-87.1%
Net credit losses

    Total charge-offs

(341)

(711)

-52.0%

(1,435)

(2,371)

-39.5%
    Total recoveries

282

267

5.6%

566

902

-37.3%
        Total
$
(59)

$
(444)

-86.7%

$
(869)

$
(1,469)

-40.8%
Net credit losses to average
    loans outstanding:

    Commercial

7.52%

-0.59%

-1374.6%

11.98%

-1.10%

-1189.1%
    Consumer

2.07%

16.57%

-87.5%

8.47%

18.55%

-54.4%
    Auto

-12.68%

-4.08%

211.1%

-2.96%

-3.35%

-11.5%
        Total

1.60%

7.41%

-78.3%

7.22%

6.79%

6.3%
Recoveries to charge-offs

82.70%

37.55%

120.2%

39.44%

38.04%

3.7%
Average loans accounted for under ASC 310-20:

    Commercial
$
958

1,353

-29.2%

$
1,035

1,457

-29.0%
    Consumer

12,931

13,105

-1.3%

12,941

13,202

-2.0%
    Auto

820

9,516

-91.4%

2,071

14,180

-85.4%
        Total
$
14,709

$
23,974

-38.6%

$
16,047

$
28,839

-44.4%

~~106~~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 March 31,

Variance

2019

2018

%

(Dollars in thousands)
Originated and other loans and leases:

Mortgage

    Charge-offs
$
(587)

$
(968)

-39.4%
    Recoveries

287

314

-8.6%
        Total

(300)

(654)

-54.1%
Commercial

    Charge-offs

(1,086)

(1,149)

-5.5%
    Recoveries

147

182

-19.2%
        Total

(939)

(967)

-2.9%
Consumer

    Charge-offs

(4,121)

(4,258)

-3.2%
    Recoveries

263

240

9.6%
        Total

(3,858)

(4,018)

-4.0%
Auto

    Charge-offs

(11,371)

(8,982)

26.6%
    Recoveries

3,982

3,777

5.4%
        Total

(7,389)

(5,205)

42.0%
Net credit losses

    Total charge-offs

(17,165)

(15,357)

11.8%
    Total recoveries

4,679

4,513

3.7%
        Total
$
(12,486)

$
(10,844)

15.1%
Net credit losses to average
    loans outstanding:

    Mortgage

0.18%

0.38%

-52.6%
    Commercial

0.24%

0.30%

-20.0%
    Consumer

4.29%

5.07%

-15.4%
    Auto

2.54%

2.23%

13.9%
        Total

1.32%

1.34%

-1.5%
Recoveries to charge-offs

27.26%

29.39%

-7.2%
Average originated loans:

    Mortgage
$
668,654

683,398

-2.2%
    Commercial

1,591,415

1,310,444

21.4%
    Consumer

360,093

317,295

13.5%
    Auto

1,162,153

933,456

24.5%
        Total
$
3,782,315

$
3,244,593

16.6%
TABLE 11 — NON-PERFORMING ASSETS


September 30,

December 31,

Variance

2019

2018

(%)

(Dollars in thousands)

Non-performing assets:

    Non-accruing loans

        Troubled-Debt Restructuring loans
$
22,057

$
41,679

-47.1%
        Other loans

51,341

78,047

-34.2%
    Accruing loans

        Troubled-Debt Restructuring loans

2,779

4,302

-35.4%
        Other loans

646

541

19.4%
            Total non-performing loans
$
76,823

$
124,569

-38.3%
   Foreclosed real estate

26,952

33,768

-20.2%
   Other repossessed assets

3,537

2,986

18.5%

$
107,312

$
161,323

-33.5%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)

1.93%

2.76%

-30.1%
Non-performing assets to total capital

11.81%

16.13%

-26.8%


Quarter Ended September 30,

Nine-Month Period Ended September 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
$
590

$
1,101

$
1,180

$
2,652

~~107~~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)
TABLE 12 — NON-PERFORMING LOANS
TABLE 12 — NON-PERFORMING LOANS

Quarter Ended March 31,
September 30,

December 31,

Variance

Variance
2019

2018

%

2019

2018

%
(Dollars in thousands)

Non-performing loans:

Originated and other loans held for investment

Mortgage
$
21,138

$
63,717

-66.8%
Commercial

35,601

42,456

-16.1%
Consumer

4,008

3,354

19.5%
Auto and leasing

15,019

13,494

11.3%

(Dollars in thousands)

75,766

123,021

-38.4%
Acquired loans accounted for under ASC 310-20:

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

Commercial

808

950

-14.9%
Recoveries

3

3

0.0%
Consumer

205

398

-48.5%
Auto

44

200

-78.0%

1,057

1,548

-31.7%
Total

3

3

0.0%
$
76,823

$
124,569

-38.3%
Non-performing loans composition percentages:

Originated loans

Mortgage

27.5%

51.1%

Commercial

46.2%

34.1%

Consumer

5.2%

2.7%

Charge-offs

(440)

(1,022)

-56.9%
Recoveries

40

54

-25.9%
Total

(400)

(968)

-58.7%
Auto

Charge-offs

(85)

(125)

-32.0%
Recoveries

90

228

-60.5%
Total

5

103

-95.1%
Net credit losses

Total charge-offs

(525)

(1,147)

-54.2%
Total recoveries

133

285

-53.3%
Total
$
(392)

$
(862)

-54.5%
Net credit losses to average
loans outstanding:

Auto and leasing

19.6%

10.8%

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

Commercial

-0.48%

-0.38%

26.3%

1.1%

0.8%

Consumer

12.29%

28.82%

-57.3%

0.3%

0.3%

Auto

-0.56%

-2.14%

-74.0%

0.1%

0.2%

Total

8.20%

9.60%

-14.5%

100.0%

100.0%

Recoveries to charge-offs

25.33%

24.85%

2.0%
Average loans accounted for under ASC 310-20:

Commercial
$
2,494

3,194

-21.9%
Consumer

13,015

13,436

-3.1%
Auto

3,602

19,292

-81.3%
Total
$
19,111

$
35,922

-46.8%
Non-performing loans to:

Total loans, excluding loans accounted for
under ASC 310-30 (including those by analogy)

2.01%

3.30%

-39.1%
Total assets, excluding loans accounted for
under ASC 310-30 (including those by analogy)

1.19%

2.13%

-44.1%
Total capital

7.32%

12.46%

-41.3%
Non-performing loans with partial charge-offs to:

Total loans, excluding loans accounted for
under ASC 310-30 (including those by analogy)

0.63%

1.16%

-45.69%
Non-performing loans

31.19%

35.30%

-11.6%
Other non-performing loans ratios:

Charge-off rate on non-performing loans to non-performing loans
on which charge-offs have been taken

80.22%

59.20%

35.5%
Allowance for loan and lease losses to non-performing
loans on which no charge-offs have been taken

149.05%

120.67%

23.5%

~~108~~130
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 11 — NON-PERFORMING ASSETS


March 31,

December 31,

Variance

2019

2018

(%)

(Dollars in thousands)

Non-performing assets:

    Non-accruing loans

        Troubled-Debt Restructuring loans
$
40,815

$
41,679

-2.1%
        Other loans

81,910

78,047

4.9%
    Accruing loans

        Troubled-Debt Restructuring loans

4,372

4,302

1.6%
        Other loans

536

541

-0.9%
            Total non-performing loans
$
127,633

$
124,569

2.5%
   Foreclosed real estate

30,865

33,768

-8.6%
   Other repossessed assets

3,574

2,986

19.7%

$
162,072

$
161,323

0.5%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)

2.50%

2.76%

-9.4%
Non-performing assets to total capital

15.87%

16.13%

-1.6%


Quarter Ended March 31,

2019

2018

(In thousands)
Interest that would have been recorded in the period if the
    loans had not been classified as non-accruing loans
$
1,107

$
996

TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION

September 30,

December 31,

Variance

2019

2018

%

(Dollars in thousands)

Deposits:

    Non-interest bearing deposits
$
1,100,235

$
1,105,324

-0.5%
    NOW accounts

1,127,978

1,086,447

3.8%
    Savings and money market accounts

1,225,654

1,212,260

1.1%
    Certificates of deposit

1,422,374

1,501,002

-5.2%
        Total deposits

4,876,241

4,905,033

-0.6%
    Accrued interest payable

1,817

3,082

-41.0%
        Total deposits and accrued interest payable

4,878,058

4,908,115

-0.6%
Borrowings:

    Securities sold under agreements to repurchase

190,261

455,508

-58.2%
    Advances from FHLB

79,052

77,620

1.8%
    Subordinated capital notes

36,083

36,083

0.0%
    Other term notes

551

1,214

-54.6%
        Total borrowings

305,947

570,425

-46.4%
            Total deposits and borrowings

5,184,005

5,478,540

-5.4%

Other Liabilities:

Derivative liabilities

1,159

333

248.0%
Acceptances outstanding

21,796

16,937

28.7%
Lease liability

21,081

-

100.0%
Other liabilities

56,388

87,665

-35.7%
            Total liabilities
$
5,284,429

$
5,583,475

-5.4%
Deposits portfolio composition percentages:

    Non-interest bearing deposits

22.6%

22.5%

    NOW accounts

23.1%

22.1%

    Savings and money market accounts

25.1%

24.7%

    Certificates of deposit

29.2%

30.7%

100.0%

100.0%

Borrowings portfolio composition percentages:

    Securities sold under agreements to repurchase

62.2%

79.9%

    Advances from FHLB

25.8%

13.6%

    Other term notes

0.2%

0.2%

    Subordinated capital notes

11.8%

6.3%

100.0%

100.0%

Securities sold under agreements to repurchase (excluding accrued interest)

    Amount outstanding at period-end
$
190,000

$
454,723

    Daily average outstanding balance
$
336,859

$
357,086

    Maximum outstanding balance at any month-end
$
461,954

$
457,053

~~109~~131
OFG BANCORP
TABLE 12 — NON-PERFORMING LOANS

March 31,

December 31,

Variance

2019

2018

%

(Dollars in thousands)

Non-performing loans:

Originated and other loans held for investment

    Mortgage
$
59,665

$
63,717

-6.4%
    Commercial

50,376

42,456

18.7%
    Consumer

3,971

3,354

18.4%
    Auto and leasing

12,163

13,494

-9.9%

126,175

123,021

2.6%
    Acquired loans accounted for under ASC 310-20 (Loans with
        revolving feature and/or acquired at a premium)

    Commercial

932

950

-1.9%
    Consumer

426

398

7.0%
    Auto

100

200

-50.0%

1,458

1,548

-5.8%
        Total
$
127,633

$
124,569

2.5%
Non-performing loans composition percentages:

Originated loans

    Mortgage

46.8%

51.1%

    Commercial

39.5%

34.1%

    Consumer

3.1%

2.7%

    Auto and leasing

9.5%

10.8%

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

    Commercial

0.7%

0.8%

    Consumer

0.3%

0.3%

    Auto

0.1%

0.2%

        Total

100.0%

100.0%

Non-performing loans to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

3.39%

3.30%

2.7%
    Total assets, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.97%

2.13%

-7.5%
    Total capital

12.50%

12.46%

0.3%
Non-performing loans with partial charge-offs to:

    Total loans, excluding loans accounted for
        under ASC 310-30 (including those by analogy)

1.09%

1.16%

-6.03%
    Non-performing loans

32.23%

35.30%

-8.7%
Other non-performing loans ratios:

    Charge-off rate on non-performing loans to non-performing loans
        on which charge-offs have been taken

60.10%

59.20%

1.5%
    Allowance for loan and lease losses to non-performing
        loans on which no charge-offs have been taken

110.99%

120.67%

-8.0%

~~110~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION

March 31,

December 31,

Variance

2019

2018

%

(Dollars in thousands)

Deposits:

    Non-interest bearing deposits
$
1,092,488

$
1,105,324

-1.2%
    NOW accounts

1,125,658

1,086,447

3.6%
    Savings and money market accounts

1,252,158

1,212,260

3.3%
    Certificates of deposit

1,424,543

1,501,002

-5.1%
        Total deposits

4,894,847

4,905,033

-0.2%
    Accrued interest payable

2,254

3,082

-26.9%
        Total deposits and accrued interest payable

4,897,101

4,908,115

-0.2%
Borrowings:

    Securities sold under agreements to repurchase

431,566

455,508

-5.3%
    Advances from FHLB

81,111

77,620

4.5%
    Subordinated capital notes

36,083

36,083

0.0%
    Other term notes

286

1,214

-76.4%
        Total borrowings

549,046

570,425

-3.7%
            Total deposits and borrowings

5,446,147

5,478,540

-0.6%

Other Liabilities:

Derivative liabilities

439

333

31.8%
Acceptances outstanding

25,791

16,937

52.3%
Lease liability

22,618

-

100.0%
Other liabilities

87,004

87,665

-0.8%
            Total liabilities
$
5,581,999

$
5,583,475

0.0%
Deposits portfolio composition percentages:

    Non-interest bearing deposits

22.3%

22.5%

    NOW accounts

23.0%

22.1%

    Savings and money market accounts

25.6%

24.7%

    Certificates of deposit

29.1%

30.7%

100.0%

100.0%

Borrowings portfolio composition percentages:

    Securities sold under agreements to repurchase

78.5%

79.9%

    Advances from FHLB

14.8%

13.6%

    Other term notes

0.1%

0.2%

    Subordinated capital notes

6.6%

6.3%

100.0%

100.0%

Securities sold under agreements to repurchase (excluding accrued interest)

    Amount outstanding at period-end
$
430,957

$
454,723

    Daily average outstanding balance
$
444,843

$
357,086

    Maximum outstanding balance at any month-end
$
454,723

$
457,053

~~111~~
Liabilities and Funding Sources

As shown in Table 15 above, at ~~March 31,~~September 30, 2019, Oriental’s total liabilities were ~~$5.582~~$5.284 billion, ~~0.03%~~5.4% less than the $5.583 billion reported at December 31, 2018. Deposits and borrowings, Oriental’s funding sources, amounted to ~~$5.446~~$5.184 billion at ~~March 31,~~September 30, 2019 versus $5.479 billion at December 31, 2018, a ~~0.6%~~5.4% decrease.

Borrowings consist mainly of repurchase agreements, FHLB-NY advances and subordinated capital notes. At ~~March 31,~~September 30, 2019, borrowings amounted to ~~$549.0~~$305.9 million, representing a decrease of ~~3.8%~~46.4% when compared with the $570.4 million reported at December 31, 2018. The decrease in borrowings ~~reflects:~~
·~~A decrease~~reflect the reduction of ~~$23.9~~$241.0 million ~~attributable to $23.7 million decrease~~ in ~~short-term~~ repurchase agreements ~~that matured~~with the proceeds from the sale of $672.1 million of mortgage-backed securities during the second and third quarter ~~ended March 31, 2019 and were not renewed, partially offset by;~~
·~~An increase~~ of $3.5 million in advances from the FHLB-NY attributable to $4.5 million of new advances from a special program from the FHLB called Disaster Relief Funding (DRF) and it was created to offer advances with special rates to those areas declared as disaster areas.2019.

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 ~~lease~~leases classified as operating leases prospectively. At ~~March 31,~~September 30, 2019, the lease liability amounted to ~~$22.6~~$21.1 million.

At ~~March 31,~~September 30, 2019, deposits represented ~~89%~~94% and borrowings represented ~~11%~~6% of interest-bearing liabilities. At ~~March 31,~~September 30, 2019, deposits, the largest category of Oriental’s interest-bearing liabilities, were ~~$4.897~~$4.878 billion, a slight decrease of ~~0.2%~~0.6% from $4.908 billion at December 31, 2018. Such decrease reflects a reduction of $62.8 million in brokered CD’s, mainly as a result of the sale of mortgage-backed securities during the nine-month period ended September 30, 2019.

Stockholders’ Equity

At ~~March 31,~~September 30, 2019, Oriental’s total stockholders’ equity was ~~$1.021~~$1.049 billion, a ~~2.13%~~4.9% increase when compared to $999.9 million at December 31, 2018. This increase in stockholders’ equity reflects increases in retained earnings of ~~$15.1~~$32.8 million ~~a decrease~~and legal surplus of $5.6 million; and decreases in accumulated other comprehensive loss, net of tax of ~~$2.9~~$8.5 million ~~an increase in the legal surplus of $2.5 million~~ and ~~reduction in~~ treasury stock, at cost, of ~~$437~~$697 thousand. Book value per share was ~~$18.30~~$18.84 at ~~March 31,~~September 30, 2019 compared to $17.90 at December 31, 2018.

From December 31, 2018 to ~~March 31,~~September 30, 2019, tangible common equity to total assets increased from 12.59% to ~~12.88%~~13.87%, leverage capital ratio increased from 14.22% to ~~14.64%~~15.41%, common equity tier 1 capital ratio increased from 16.78% to ~~17.09%~~17.98%, tier 1 risk-based capital ratio increased from 19.20% to ~~19.49%~~20.43%, and total risk-based capital ratio increased from 20.48% to ~~20.77%~~21.71%. The increase in these ratios reflect an increase of ~~$21.3~~$49.2 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

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 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 ~~March 31,~~September 30, 2019, the capital ratios of Oriental and the Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.

~~112~~
The risk-based capital ratios presented in Table 14, which include common equity tier 1, tier 1 capital, total capital and leverage capital as of ~~March 31,~~September 30, 2019 and December 31, 2018, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.
~~113~~132
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following are the consolidated capital ratios of Oriental under the Basel III capital rules at ~~March 31,~~September 30, 2019 and December 31, 2018:

TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA

March 31,

December 31,

Variance
September 30,

December 31,

Variance

2019

2018

%
2019

2018

%

(Dollars in thousands, except per share data)

(Dollars in thousands, except per share data)

Capital data:

Stockholders’ equity
$
1,021,192

$
999,877

2.1%
$
1,049,076

$
999,877

4.9%
Regulatory Capital Ratios data:

Common equity tier 1 capital ratio

17.09%

16.78%

1.8%

17.98%

16.78%

7.2%
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
$
832,924

811,707

2.6%
$
858,092

811,707

5.7%
Minimum common equity tier 1 capital required
$
219,276

217,675

0.7%
$
214,702

217,675

-1.4%
Minimum capital conservation buffer required
$
91,365

90,698

0.7%
$
119,279

90,698

31.5%
Excess over regulatory requirement
$
522,283

503,334

3.8%
$
524,111

503,334

4.1%
Risk-weighted assets
$
4,872,806

4,837,214

0.7%
$
4,771,165

4,837,214

-1.4%
Tier 1 risk-based capital ratio

19.49%

19.20%

1.5%

20.43%

19.20%

6.4%
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
$
949,794

$
928,577

2.3%
$
974,962

$
928,577

5.0%
Minimum tier 1 risk-based capital required
$
292,368

$
290,233

0.7%
$
286,270

$
290,233

-1.4%
Excess over regulatory requirement
$
657,427

$
638,344

3.0%
$
688,692

$
638,344

7.9%
Risk-weighted assets
$
4,872,806

$
4,837,214

0.7%
$
4,771,165

$
4,837,214

-1.4%
Total risk-based capital ratio

20.77%

20.48%

1.4%

21.71%

20.48%

6.0%
Minimum total risk-based capital ratio required

8.00%

8.00%

0.0%

8.00%

8.00%

0.0%
Actual total risk-based capital
$
1,012,112

$
990,499

2.2%
$
1,035,910

$
990,499

4.6%
Minimum total risk-based capital required
$
389,824

$
386,977

0.7%
$
381,693

$
386,977

-1.4%
Excess over regulatory requirement
$
622,288

$
603,522

3.1%
$
654,217

$
603,522

8.4%
Risk-weighted assets
$
4,872,806

$
4,837,214

0.7%
$
4,771,165

$
4,837,214

-1.4%
Leverage capital ratio

14.64%

14.22%

3.0%

15.41%

14.22%

8.4%
Minimum leverage capital ratio required

4.00%

4.00%

0.0%

4.00%

4.00%

0.0%
Actual tier 1 capital
$
949,794

$
928,577

2.3%
$
974,962

$
928,577

5.0%
Minimum tier 1 capital required
$
259,456

$
261,125

-0.6%
$
253,010

$
261,125

-3.1%
Excess over regulatory requirement
$
690,339

$
667,452

3.4%
$
721,952

$
667,452

8.2%
Tangible common equity to total assets

12.88%

12.59%

2.3%

13.87%

12.59%

10.2%
Tangible common equity to risk-weighted assets

17.45%

17.13%

1.9%

18.42%

17.13%

7.5%
Total equity to total assets

15.47%

15.19%

1.8%

16.56%

15.19%

9.0%
Total equity to risk-weighted assets

20.96%

20.67%

1.4%

21.99%

20.67%

6.4%
Stock data:

Outstanding common shares

51,328,431

51,293,924

0.1%

51,347,056

51,293,924

0.1%
Book value per common share
$
18.30

$
17.90

2.2%
$
18.84

$
17.90

5.2%
Tangible book value per common share
$
16.56

$
16.15

2.6%
$
17.11

$
16.15

6.0%
Market price at end of period
$
19.79

$
16.46

20.2%
$
21.90

$
16.46

33.0%
Market capitalization at end of period
$
1,015,790

$
844,298

20.3%
$
1,124,501

$
844,298

33.2%
~~114~~133
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 ~~March 31,~~September 30, 2019 and December 31, 2018:

March 31,

December 31,
September 30,

December 31,

2019

2018
2019

2018

(In thousands, except share or per
share information)
(In thousands, except share or per
share information)
Total stockholders' equity
$
1,021,192

$
999,877
$
1,049,076

$
999,877
Preferred stock

(92,000)

(92,000)

(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

(2,280)

(2,480)

(1,880)

(2,480)
Customer relationship intangible

(796)

(888)

(611)

(888)
Total tangible common equity (non-GAAP)
$
850,177

$
828,570
$
878,646

$
828,570
Total assets

6,603,191

6,583,352

6,333,505

6,583,352
Goodwill

(86,069)

(86,069)

(86,069)

(86,069)
Core deposit intangible

(2,280)

(2,480)

(1,880)

(2,480)
Customer relationship intangible

(796)

(888)

(611)

(888)
Total tangible assets
$
6,514,046

$
6,493,915
$
6,244,945

$
6,493,915
Tangible common equity to tangible assets

13.05%

12.76%

14.07%

12.76%
Common shares outstanding at end of period

51,328,431

51,293,924

51,347,056

51,293,924
Tangible book value per common share
$
16.56

$
16.15
$
17.11

$
16.15

The tangible common equity ratio and tangible book value per common share are non-GAAP measures and, unlike tier 1 capital and 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.

~~115~~134
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents Oriental’s capital adequacy information under the Basel III capital rules:

March 31,

December 31,

Variance
September 30,

December 31,

Variance

2019

2018

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Risk-based capital:

Common equity tier 1 capital
$
832,924

$
811,707

2.6%
$
858,092

$
811,707

5.7%
Additional tier 1 capital

116,870

116,870

0.0%

116,870

116,870

0.0%
Tier 1 capital

949,794

928,577

2.3%

974,962

928,577

5.0%
Additional Tier 2 capital

62,318

61,922

0.6%

60,948

61,922

-1.6%
Total risk-based capital
$
1,012,112

$
990,499

2.2%
$
1,035,910

$
990,499

4.6%
Risk-weighted assets:

Balance sheet items
$
4,640,278

$
4,641,998

0.0%
$
4,539,290

$
4,641,998

-2.2%
Off-balance sheet items

232,528

195,216

19.1%

231,875

195,216

18.8%
Total risk-weighted assets
$
4,872,806

$
4,837,214

0.7%
$
4,771,165

$
4,837,214

-1.4%
Ratios:

Common equity tier 1 capital (minimum required - 4.5%)

17.09%

16.78%

1.8%

17.98%

16.78%

7.2%
Tier 1 capital (minimum required - 6%)

19.49%

19.20%

1.5%

20.43%

19.20%

6.4%
Total capital (minimum required - 8%)

20.77%

20.48%

1.4%

21.71%

20.48%

6.0%
Leverage ratio (minimum required - 4%)

14.64%

14.22%

3.0%

15.41%

14.22%

8.4%
Equity to assets

15.47%

15.19%

1.8%

16.56%

15.19%

9.0%
Tangible common equity to assets

12.88%

12.59%

2.3%

13.87%

12.59%

10.2%
~~116~~135
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 ~~March 31,~~September 30, 2019 and December 31, 2018:

March 31,

December 31,

Variance
September 30,

December 31,

Variance

2019

2018

%
2019

2018

%

(Dollars in thousands)

(Dollars in thousands)

Oriental Bank Regulatory Capital Ratios:

Common Equity Tier 1 Capital to Risk-Weighted Assets

18.63%

18.40%

1.3%

19.55%

18.40%

6.3%
Actual common equity tier 1 capital
$
904,813

$
887,918

1.9%
$
930,216

$
887,918

4.8%
Minimum capital requirement (4.5%)
$
218,572

$
217,120

0.7%
$
214,087

$
217,120

-1.4%
Minimum capital conservation buffer requirement (1.875% at March 31, 2019 - 1.875% at December 31, 2018)
$
91,072

$
90,467

0.7%
Minimum capital conservation buffer requirement (1.875%)
$
118,937

$
90,467

31.5%
Minimum to be well capitalized (6.5%)
$
315,715

$
313,618

0.7%
$
309,237

$
313,618

-1.4%
Tier 1 Capital to Risk-Weighted Assets

18.63%

18.40%

1.3%

19.55%

18.40%

6.3%
Actual tier 1 risk-based capital
$
904,813

$
887,918

1.9%
$
930,216

$
887,918

4.8%
Minimum capital requirement (6%)
$
291,429

$
289,494

0.7%
$
285,449

$
289,494

-1.4%
Minimum to be well capitalized (8%)
$
388,573

$
385,992

0.7%
$
380,599

$
385,992

-1.4%
Total Capital to Risk-Weighted Assets

19.91%

19.68%

1.2%

20.83%

19.68%

5.8%
Actual total risk-based capital
$
966,848

$
949,596

1.8%
$
990,903

$
949,596

4.3%
Minimum capital requirement (8%)
$
388,573

$
385,992

0.7%
$
380,599

$
385,992

-1.4%
Minimum to be well capitalized (10%)
$
485,716

$
482,490

0.7%
$
475,749

$
482,490

-1.4%
Total Tier 1 Capital to Average Total Assets

14.02%

13.68%

2.5%

14.83%

13.68%

8.4%
Actual tier 1 capital
$
904,813

$
887,918

1.9%
$
930,216

$
887,918

4.8%
Minimum capital requirement (4%)
$
258,183

$
259,547

-0.5%
$
250,964

$
259,547

-3.3%
Minimum to be well capitalized (5%)
$
322,728

$
324,434

-0.5%
$
313,705

$
324,434

-3.3%

~~117~~136
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 ~~March 31,~~September 30, 2019 and December 31, 2018, Oriental’s market capitalization for its outstanding common stock was ~~$1.016~~$1.125 billion ($~~19.79~~21.90 per share) and $844.3 million ($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 three calendar years:

Cash

Cash

Price

Dividend
Price

Dividend

High

Low

Per share
High

Low

Per share
2019

September 30, 2019
$
24.20

$
19.84

$
0.07
June 30, 2019

23.77

$
18.78

$
0.07
March 31, 2019
$
21.24

$
16.37

$
0.07
$
21.24

$
16.37

$
0.07
2018

December 31, 2018
$
18.56

$
14.93

$
0.07
$
18.56

$
14.93

$
0.07
September 30, 2018
$
17.60

$
14.45

$
0.06
$
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

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 nine-month period ended ~~March 31,~~September 30, 2019.

At ~~March 31,~~September 30, 2019, the number of shares that may yet be purchased under such program is estimated at ~~390,644~~353,007   and was calculated by dividing the remaining balance of $7.7 million by ~~$19.79~~$21.90 (closing price of Oriental's common stock at ~~March 31,~~September 30, 2019).
~~118~~137
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’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 organic 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.
~~119~~
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 ~~March 31,~~September 30, 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
$
11,451

3.63%

$
12,716

3.76%
$
19,660

6.29%

$
20,378

6.34%
+ 100 Basis points
$
5,790

1.84%

$
6,421

1.90%
$
9,879

3.16%

$
10,238

3.18%
- 100 Basis points
$
(5,726)

-1.82%

$
(6,339)

-1.88%
$
(9,908)

-3.17%

$
(10,251)

-3.19%
- 200 Basis points
$
(11,449)

-3.63%

$
(12,675)

-3.75%
$
(18,703)

-5.99%

$
(19,305)

-6.00%

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 ~~March 31,~~September 30, 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 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 78 to the accompanying consolidated financial statements for further information concerning Oriental’s derivative activities.

Following is a summary of certain strategies, including derivative activities, currently used by Oriental to manage interest rate risk:

~~120~~139
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 borrowing transactions occurred, the interest rate swap effectively fixes Oriental’s interest payments on an amount of forecasted interest expense attributable to the one-month LIBOR rate corresponding to the swap notional stated rate. A derivative liability of ~~$329 thousand~~$1.2 million (notional amount of ~~$33.2~~$32.4 million) was recognized at ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2019, Oriental did not have interest rate swaps offered to clients not designated as hedging instruments represented a derivative asset of $33 thousand (notional amounts of $12.5 million), and the mirror-image interest rate swaps in which Oriental entered into represented a derivative liability of $33 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 ~~March 31,~~September 30, 2019, Oriental had ~~$33.2~~$32.4 million in interest rate swaps at an average rate of 2.42% designated as cash flow hedges for ~~$33.2~~$32.4 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 for 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 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.

Liquidity Risk

Liquidity risk is the risk of Oriental not being able to generate sufficient cash from either assets or liabilities to meet obligations as they become due without incurring substantial losses. The Board has established a policy to manage this risk. Oriental’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as these mature, and funding of new and existing investments as required.

~~121~~140
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 ~~March 31,~~September 30, 2019, Oriental had ~~$431.0~~$190.0 million in repurchase agreements, excluding accrued interest, and ~~$451.2~~$288.4 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 ~~March 31,~~September 30, 2019, Oriental had approximately ~~$506.0~~$961.8 million in unrestricted cash and cash equivalents, ~~$638.3~~$140.9 million in investment securities that are not pledged as collateral, and ~~$790.3~~$744.2 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.

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.
~~122~~141
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 ~~March 31,~~September 30, 2019, that has materially affected, or is reasonably likely to materially affect, Oriental’s internal control over financial reporting.

~~123~~
PART - II OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

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

ITEM 1A.   RISK FACTORS

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, ~~2018.~~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.
143
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.
~~124~~
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
ITEM 6.      EXHIBITS

Exhibit No. Description of Document:

~~10.1~~   ~~2007 Omnibus Performance Incentive Plan Performance Shares Award and Agreement.~~

31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101   The following materials from OFG Bancorp’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 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.
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~125~~
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
OFG Bancorp
(Registrant)

By:
/s/ José Rafael Fernández

Date: ~~May 3,~~November 7, 2019

José Rafael Fernández

President and Chief Executive Officer

By:
/s/ Maritza Arizmendi

Date: ~~May 3,~~November 7, 2019

Maritza Arizmendi

Executive Vice President, Chief Financial Officer and
Chief Accounting Officer

By:
/s/ Krisen Aguirre Torres

Date: ~~May 3,~~November 7, 2019

Krisen Aguirre Torres

Vice President Financial Reporting and Accounting Control

~~126~~146

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

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


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

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

	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

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


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


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

September 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	$	1,159	$	-	$	1,159	$	-	$	-	$	1,159
Securities sold under agreements to repurchase		190,000		-		190,000		205,662		-		(15,662)
Total	$	191,159	$	-	$	191,159	$	205,662	$	-	$	(14,503)


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)

				Minimum Capital			Minimum to be Well
	Actual			Requirement			Capitalized
	Amount		Ratio	Amount		Ratio		Amount	Ratio
	(Dollars in thousands)
OFG Bancorp Ratios
As of September 30, 2019
Total capital to risk-weighted assets	$	1,035,910	21.71%	$	381,693	8.00%	$	477,117	10.00%
Tier 1 capital to risk-weighted assets	$	974,962	20.43%	$	286,270	6.00%	$	381,693	8.00%
Common equity tier 1 capital to risk-weighted assets	$	858,092	17.98%	$	214,702	4.50%	$	310,126	6.50%
Tier 1 capital to average total assets	$	974,962	15.41%	$	253,010	4.00%	$	316,262	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%

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

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

	Quarter Ended			Quarter Ended September 30, 2019		Nine-Month Period Ended September 30, 2019
	March 31, 2019		Statement of Operations Classification	Quarter Ended September 30, 2019		Nine-Month Period Ended September 30, 2019		Statement of Operations Classification
	(In thousands)			(In thousands)
Lease costs	$	1,529	Occupancy and equipment	$	1,608	$	4,949	Occupancy and equipment
Variable lease costs		684	Occupancy and equipment		350		1,699	Occupancy and equipment
Short-term lease cost		156	Occupancy and equipment		81		104	Occupancy and equipment
Lease income		(155)	Occupancy and equipment		(135)		(431)	Occupancy and equipment
Total lease cost	$	2,214		$	1,904	$	6,321

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

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

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

		September 30 2019
		September 30 2019	Statement of Financial Condition Classification
		(In thousands)
Right-of-use assets	$	19,318	Operating lease right-of-use assets
Lease Liabilities	$	21,081	Operating leases liabilities

	March 31, 2019								September 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	$	-	$	1,239,469	$	-	$	1,239,469	$	-	$	519,095	$	-	$	519,095
Trading securities		-		381		-		381		-		41		-		41
Money market investments		7,665		-		-		7,665		8,035		-		-		8,035
Derivative assets		-		110		-		110		-		13		-		13
Servicing assets		-		-		10,623		10,623		-		-		10,125		10,125
Derivative liabilities		-		(439)		-		(439)		-		(1,159)		-		(1,159)
	$	7,665	$	1,239,521	$	10,623	$	1,257,809	$	8,035	$	517,990	$	10,125	$	536,150
Non-recurring fair value measurements:
Impaired commercial loans	$	-	$	-	$	89,362	$	89,362	$	-	$	-	$	59,507	$	59,507
Foreclosed real estate		-		-		30,865		30,865		-		-		26,952		26,952
Other repossessed assets		-		-		3,574		3,574		-		-		3,537		3,537
	$	-	$	-	$	123,801	$	123,801	$	-	$	-	$	89,996	$	89,996

Level 3 Instruments Only	Servicing Assets				Servicing Assets
	(In thousands)				(In thousands)
	Quarter Ended March 31,				Quarter Ended September 30,
	2019		2018		2019		2018
Balance at beginning of period	$	10,716	$	9,821	$	10,134	$	10,829
New instruments acquired		302		352		352		417
Principal repayments		(201)		(199)		(243)		(184)
Changes in fair value of servicing assets		(194)		559		(118)		(196)
Balance at end of period	$	10,623	$	10,533	$	10,125	$	10,866


Level 3 Instruments Only					Servicing Assets
					(In thousands)
					Nine-Month Period Ended September 30,
					2019		2018
					(In thousands)
Balance at beginning of period					$	10,716	$	9,821
New instruments acquired						860		1,158
Principal repayments						(694)		(593)
Changes in fair value of servicing assets						(757)		480
Balance at end of period					$	10,125	$	10,866

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

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


Other non-collateral dependent impaired loans	$	44,645	Cash flow valuation	Discount rate	4.25% - 12.25%

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

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

													Quarter Ended September 30, 2019
															Wealth				Total Major				Consolidated
													Banking		Management		Treasury		Segments		Eliminations		Total
													(In thousands)
Interest income													$	85,147	$	16	$	8,492	$	93,655	$	-	$	93,655
Interest expense														(9,260)		-		(3,685)		(12,945)		-		(12,945)
Net interest income														75,887		16		4,807		80,710		-		80,710
Provision for loan and lease losses, net														(43,678)		-		(92)		(43,770)		-		(43,770)
Non-interest income														11,946		6,719		3,513		22,178		-		22,178
Non-interest expenses														(46,555)		(3,450)		(722)		(50,727)		-		(50,727)
Intersegment revenue														507		-		-		507		(507)		-
Intersegment expenses														-		(141)		(366)		(507)		507		-
(lLoss) income before income taxes													$	(1,893)	$	3,144	$	7,140	$	8,391	$	-	$	8,391
Income tax (benefit) expense														(738)		1,226		520		1,008		-		1,008
Net income (loss)													$	(1,155)	$	1,918	$	6,620	$	7,383	$	-	$	7,383
Total assets													$	5,919,877	$	26,596	$	1,465,329	$	7,411,802	$	(1,078,297)	$	6,333,505

	Quarter Ended March 31, 2019												Nine-Month Period Ended September 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	$	83,516	$	18	$	11,176	$	94,710	$	-	$	94,710	$	253,138	$	53	$	29,429	$	282,620	$	-	$	282,620
Interest expense		(8,636)		-		(4,285)		(12,921)		-		(12,921)		(27,083)		-		(11,953)		(39,036)		-		(39,036)
Net interest income		74,880		18		6,891		81,789		-		81,789		226,055		53		17,476		243,584		-		243,584
Provision for loan and lease losses, net		(12,207)		-		(42)		(12,249)		-		(12,249)		(73,560)		-		(164)		(73,724)		-		(73,724)
Non-interest income		11,656		5,984		16		17,656		-		17,656		34,932		19,537		8,313		62,782		-		62,782
Non-interest expenses		(46,483)		(4,327)		(1,342)		(52,152)		-		(52,152)		(139,384)		(11,675)		(3,272)		(154,331)		-		(154,331)
Intersegment revenue		554		-		-		554		(554)		-		1,648		-		-		1,648		(1,648)		-
Intersegment expenses		-		(174)		(380)		(554)		554		-		-		(480)		(1,168)		(1,648)		1,648		-
Income before income taxes	$	28,400	$	1,501	$	5,143	$	35,044	$	-	$	35,044	$	49,691	$	7,435	$	21,185	$	78,311	$	-	$	78,311
Income tax expense		10,650		563		361		11,574		-		11,574		18,634		2,788		2,057		23,479		-		23,479
Net income	$	17,750	$	938	$	4,782	$	23,470	$	-	$	23,470	$	31,057	$	4,647	$	19,128	$	54,832	$	-	$	54,832
Total assets	$	5,862,487	$	25,425	$	1,742,557	$	7,630,469	$	(1,027,278)	$	6,603,191	$	5,919,877	$	26,596	$	1,465,329	$	7,411,802	$	(1,078,297)	$	6,333,505

	Quarter Ended March 31, 2018
			Wealth				Total Major				Consolidated
	Banking		Management		Treasury		Segments		Eliminations		Total
	(In thousands)
Interest income	$	74,374	$	12	$	8,784	$	83,170	$	-	$	83,170
Interest expense		(6,290)		-		(2,886)		(9,176)		-		(9,176)
Net interest income		68,084		12		5,898		73,994		-		73,994
Provision for loan and lease losses, net		(15,455)		-		(5)		(15,460)		-		(15,460)
Non-interest income		12,193		6,308		13		18,514		-		18,514
Non-interest expenses		(48,081)		(3,286)		(754)		(52,121)		-		(52,121)
Intersegment revenue		361		-		-		361		(361)		-
Intersegment expenses		-		(179)		(182)		(361)		361		-
Income before income taxes	$	17,102	$	2,855	$	4,970	$	24,927	$	-	$	24,927
Income tax expense (benefit)		6,670		1,113		227		8,010		-		8,010
Net income	$	10,432	$	1,742	$	4,743	$	16,917	$	-	$	16,917
Total assets	$	5,661,759	$	28,377	$	1,529,912	$	7,220,048	$	(972,927)	$	6,247,121

SELECTED FINANCIAL DATA - (Continued)

	March 31,			December 31,		Variance	September 30,		December 31,		Variance
	2019			2018		%	2019		2018		%
PERIOD END BALANCES AND CAPITAL RATIOS:	(In thousands, except per share data)						(In thousands, except per share data)
Investments and loans
Investment securities	$	1,252,653		$	1,279,604	-2.1%	$	529,718	$	1,279,604	-58.6%
Loans and leases, net		4,401,401			4,431,594	-0.7%		4,407,190		4,431,594	-0.6%
Total investments and loans	$	5,654,054		$	5,711,198	-1.0%	$	4,936,908	$	5,711,198	-13.6%
Deposits and borrowings
Deposits	$	4,897,101		$	4,908,115	-0.2%	$	4,878,058	$	4,908,115	-0.6%
Securities sold under agreements to repurchase		431,566			455,508	-5.3%		190,261		455,508	-58.2%
Other borrowings		117,480	��		114,917	2.2%		115,686		114,917	0.7%
Total deposits and borrowings	$	5,446,147		$	5,478,540	-0.6%	$	5,184,005	$	5,478,540	-5.4%
Stockholders’ equity
Preferred stock	$	92,000		$	92,000	0.0%	$	92,000	$	92,000	0.0%
Common stock		59,885			59,885	0.0%		59,885		59,885	0.0%
Additional paid-in capital		619,828			619,381	0.1%		620,948		619,381	0.3%
Legal surplus		92,621			90,167	2.7%		95,783		90,167	6.2%
Retained earnings		268,101			253,040	6.0%		285,854		253,040	13.0%
Treasury stock, at cost		(103,196)			(103,633)	0.4%		(102,936)		(103,633)	0.7%
Accumulated other comprehensive (loss)		(8,047)			(10,963)	26.6%		(2,458)		(10,963)	-77.6%
Total stockholders' equity	$	1,021,192		$	999,877	2.1%	$	1,049,076	$	999,877	4.9%
Per share data
Book value per common share	$	18.30		$	17.90	2.2%	$	18.84	$	17.90	5.2%
Tangible book value per common share	$	16.56		$	16.15	2.5%	$	17.11	$	16.15	6.0%
Market price at end of period	$	19.79		$	16.46	20.2%	$	21.90	$	16.46	33.0%
Capital ratios
Leverage capital		14.64%			14.22%	3.0%		15.41%		14.22%	8.4%
Common equity Tier 1 capital ratio		17.09%			16.78%	1.8%		17.98%		16.78%	7.2%
Tier 1 risk-based capital		19.49%			19.20%	1.5%		20.43%		19.20%	6.4%
Total risk-based capital		20.77%			20.48%	1.4%		21.71%		20.48%	6.0%
Equity to assets ratio		15.47%			15.19%	1.8%		16.56%		15.19%	9.0%
Financial assets managed
Trust assets managed	$	2,925,982		$	2,771,462	5.6%	$	2,980,319	$	2,771,462	7.5%
Broker-dealer assets	$	2,302,834		$	2,116,035	8.8%	$	2,349,369	$	2,116,035	11.0%

	Quarter ended September 30, 2019						Quarter ended June 30, 2019

			Income Tax		Impact on				Income Tax		Impact on
(Dollars in thousands) (unaudited)	Pre-tax		Effect (i)		Net Income		Pre-tax		Effect (i)		Net Income

U.S. GAAP net income					$	7,383					$	23,979
Non-GAAP adjustments:
Sale of mortgage-backed securities available-for-sale (a)	$	(3,498)	$	1,067		(2,431)	$	(4,769)	$	1,532		(3,237)
Non-performing loans transferred to held-for-sale or sold (b)(c)		38,958		(11,886)		27,072		8,803		(2,828)		5,975
Sale of fully charged-off loans (d)		(2,382)		727		(1,655)		-		-		-
Merger expenses (e)		1,556		(475)		1,081		1,000		(321)		679
FDIC insurance assessment credit (f)		(1,534)		468		(1,066)		-		-		-
Hacienda credit for hurricane Maria (g)		(1,010)		308		(702)		-		-		-
Environmental factors adjustment (h)		(4,541)		1,385		(3,156)		-		-		-
Adjusted net income (Non-GAAP)					$	26,527					$	27,396
Less: dividends on preferred stoc						(1,628)						(1,628)
Adjusted net income available to common shareholders (Non-GAAP)					$	24,899					$	25,768

U.S. GAAP earnings per common share - diluted					$	0.11					$	0.43
Non-GAAP adjustments:
Sale of mortgage-backed securities available-for-sale	$	(0.07)	$	0.02		(0.05)	$	(0.09)	$	0.03		(0.06)
Non-performing loans transferred to held-for-sale or sold (b)(c)		0.75		(0.23)		0.52		0.17		(0.05)		0.12
Sale of fully charged-off loans (d)		(0.04)		0.01		(0.03)		-		-		-
Merger expenses (e)		0.03		(0.01)		0.02		0.02		(0.01)		0.01
FDIC insurance assessment credit (f)		(0.03)		0.01		(0.02)		-		-		-
Hacienda credit for hurricane Maria (g)		(0.02)		0.01		(0.01)		-		-		-
Environmental factors adjustment (h)		(0.09)		0.03		(0.06)		-		-		-
Adjusted earnings per common share - diluted (Non-GAAP)					$	0.48					$	0.50

Adjusted Performance Metrics - Reconciliation to GAAP Financial Measures:	Quarter ended September 30, 2019		Quarter ended June 30, 2019
Net income	$	7,383	$	23,979
Non-GAAP adjustments (a)(b)(c)(d)(e)(f)(g)(h)		19,144		3,417
Adjusted net income (Non-GAAP)		26,527		27,396

Average assets		6,433,658		6,496,423

Return on average assets		0.46%		1.48%
Adjusted return on average assets (Non-GAAP)		1.65%		1.69%

Net income available to common shareholders	$	5,755	$	22,351
Non-GAAP adjustments (a)(b)(c)(d)(e)(f)(g)(h)		19,144		3,417
Adjusted net income available to common shareholders (Non-GAAP)		24,899		25,768

Average tangible common equity		890,970		866,192

Return on average tangible common stockholders' equity		2.58%		10.32%
Adjusted return on average tangible common stockholders' equity (Non-GAAP)		11.18%		11.90%

Total non-interest expense	$	50,727	$	51,452
Non-GAAP adjustments, pre-tax (e)(f)(g)		988		(1,000)
Adjusted total non-interest expense (Non-GAAP)		51,715		50,452

Net interest income		80,710		81,085
Total banking and financial service revenues		18,542		18,074
		99,252		99,159

Efficiency ratio		51.11%		51.89%
Adjusted efficiency ratio (Non-GAAP)		52.10%		50.88%

(a) During the second and third quarter of 2019, the Company sold $350 million and $322 million available-for-sale mortgage-backed securities, respectively, and recognized a gain in the sale of $4.8 million and $3.5 million, respectively.
(b) During third quarter of 2019, the Company decided to sell mostly non-performing loans, which are expected to be sold during fourth quarter of 2019, increasing the provision by $37.4 million. Originated loans that were transferred to held-for-sale amounted to $25.3 million at September 30, 2019, the remaining were purchased credit impaired loans.
(c) During second quarter of 2019, the Company decided to sell mostly non-performing mortgage loans increasing the provision by $8.8 million. Most of these loans were sold in third quarter of 2019, increasing the provision by an additional $2.3 million.
(d) During third quarter of 2019, the Company received $2.4 million proceeds from the sale of fully charged-off originated auto and consumer loans.
(e) During second quarter of 2019, the Company entered into an agreement with BNS to acquire its Puerto Rico and US Virgin Islands operations, subject to customary closing conditions. During second quarter of 2019 and third quarter of 2019, $1.0 million and $1.6 million, respectively, were incurred in related expenses.
(f) During third quarter of 2019, the Company recognized an FDIC insurance assessment credit received amounting to $1.5 million.
(g) During third quarter of 2019, the Company received an additional $1 million credit from the Puerto Rico Treasury on employee retention during hurricane Maria.
(h) During third quarter of 2019, the Company had a reduction in provision for loan losses of $4.5 million as a result of the adjustment to the qualitative factor related to sustained favorable macroeconomic conditions in Puerto Rico.
(i) Income tax effect reflects estimated income tax annual rates at September 30, 2019 and June 30, 2019 of 30.51% and 32.12%, respectively.

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

	Interest				Average rate		Average balance				Interest				Average rate		Average balance
	March		March		March	March	March		March		September		September		September	September	September		September
	2019		2018		2019	2018	2019		2018		2019		2018		2019	2018	2019		2018
	(Dollars in thousands)										(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets	$	94,710	$	83,169	6.22%	5.86%	$	6,171,448	$	5,751,444	$	93,655	$	94,137	6.21%	6.17%	$	5,981,757	$	6,055,085
Tax equivalent adjustment		2,338		1,162	0.15%	0.08%		-		-		2,629		1,934	0.17%	0.13%		-		-
Interest-earning assets - tax equivalent		97,048		84,331	6.37%	5.94%		6,171,448		5,751,444		96,284		96,071	6.38%	6.30%		5,981,757		6,055,085
Interest-bearing liabilities		12,922		9,174	0.96%	0.72%		5,452,860		5,134,452		12,945		11,860	0.98%	0.87%		5,261,453		5,437,736
Tax equivalent net interest income / spread		84,126		75,157	5.41%	5.22%		718,588		616,992		83,339		84,211	5.40%	5.43%		720,304		617,349
Tax equivalent interest rate margin					5.56%	5.31%									5.58%	5.56%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		8,223		7,350	2.65%	2.40%		1,258,899		1,239,794		3,797		8,445	2.14%	2.55%		708,606		1,327,180
Interest bearing cash and money market investments		2,368		1,207	2.47%	1.51%		388,578		323,695		4,086		1,676	2.21%	2.03%		734,105		327,268
Total investments		10,591		8,557	2.61%	2.22%		1,647,477		1,563,489		7,883		10,121	2.14%	2.55%		1,442,711		1,654,448
Non-acquired loans
Mortgage		8,887		9,012	5.39%	5.28%		668,654		692,532		8,427		8,808	5.40%	5.28%		623,772		667,372
Commercial		25,202		18,322	6.42%	5.65%		1,591,415		1,315,993		25,607		23,373	6.36%	6.13%		1,597,902		1,512,661
Consumer		10,977		9,952	12.36%	11.60%		360,093		348,029		11,449		10,857	11.99%	11.68%		378,967		363,884
Auto and leasing		26,232		21,019	9.15%	9.12%		1,162,153		934,501		28,820		25,349	9.09%	9.59%		1,258,394		1,057,232
Total non-acquired loans		71,298		58,305	7.64%	7.18%		3,782,315		3,291,055		74,303		68,387	7.64%	7.53%		3,859,035		3,601,149
Acquired loans:
Acquired BBVAPR
Mortgage		6,351		7,071	5.44%	5.57%		473,517		515,226		5,876		6,722	5.33%	5.43%		440,954		495,454
Commercial		2,707		3,746	6.90%	6.96%		159,049		218,199		2,386		4,046	6.72%	9.29%		140,821		172,724
Consumer		809		760	25.30%	21.12%		12,969		14,596		667		586	20.52%	17.37%		12,894		13,381
Auto		380		1,389	15.47%	11.00%		9,962		51,211		161		790	20.55%	11.72%		3,108		26,747
Total acquired BBVAPR loans		10,247		12,966	6.34%	6.58%		655,497		799,232		9,090		12,144	6.08%	6.86%		597,777		708,306
Acquired Eurobank		2,574		3,341	12.12%	13.87%		86,159		97,668		2,379		3,485	11.57%	15.29%		82,234		91,182
Total loans		84,119		74,612	7.54%	7.23%		4,523,971		4,187,955		85,772		84,016	7.50%	7.57%		4,539,046		4,400,637
Total interest-earning assets		94,710		83,169	6.22%	5.86%		6,171,448		5,751,444		93,655		94,137	6.21%	6.17%		5,981,757		6,055,085

TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2019 AND 2018

	Interest				Average rate		Average balance
	September		September		September	September	September		September
	2019		2018		2019	2018	2019		2018
	(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets	$	282,620	$	265,314	6.24%	6.01%	$	6,055,475	$	5,906,945
Tax equivalent adjustment		8,013		5,800	0.18%	0.13%		-		-
Interest-earning assets - tax equivalent		290,633		271,114	6.42%	6.14%		6,055,475		5,906,945
Interest-bearing liabilities		39,036		31,455	0.98%	0.79%		5,350,683		5,293,422
Tax equivalent net interest income / spread		251,597		239,659	5.44%	5.34%		704,792		613,523
Tax equivalent interest rate margin					5.62%	5.47%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities		18,292		24,131	2.44%	2.48%		1,000,217		1,299,357
Interest bearing cash and money market investments		9,357		4,126	2.33%	1.76%		535,865		313,410
Total investments		27,649		28,257	2.44%	2.48%		1,536,082		1,612,767
Non-acquired loans
Mortgage		26,022		26,602	5.44%	5.25%		637,680		675,191
Commercial		76,383		62,119	6.43%	5.88%		1,588,887		1,411,413
Consumer		33,392		30,783	11.98%	11.42%		373,644		360,258
Auto and leasing		82,783		70,053	9.18%	9.39%		1,206,054		996,972
Total non-acquired loans		218,580		189,557	7.68%	7.36%		3,806,265		3,443,834
Acquired loans:
Acquired BBVAPR
Mortgage		18,342		20,710	5.34%	5.46%		458,410		505,659
Commercial		7,539		11,297	6.69%	7.63%		150,776		197,934
Consumer		2,270		2,038	23.53%	19.60%		12,900		13,903
Auto		788		3,263	16.12%	11.30%		6,536		38,624
Total acquired BBVAPR loans		28,939		37,308	6.14%	6.58%		628,622		756,120
Acquired Eurobank		7,452		10,192	11.76%	14.42%		84,506		94,224
Total loans		254,971		237,057	7.54%	7.38%		4,519,393		4,294,178
Total interest-earning assets		282,620		265,314	6.24%	6.01%		6,055,475		5,906,945

TABLE 2 - NON-INTEREST INCOME SUMMARY

	Quarter Ended March 31,					Quarter Ended September 30,					Nine-Month Period Ended September 30,
	2019		2018		Variance	2019		2018		Variance	2019		2018		Variance
	(Dollars in thousands)					(Dollars in thousands)
Banking service revenue	$	10,465	$	10,463	0.0%	$	10,813	$	10,797	0.1%	$	32,054	$	32,404	-1.1%
Wealth management revenue		5,882		6,019	-2.3%		6,611		6,407	3.2%		19,162		18,688	2.5%
Mortgage banking activities		1,206		1,757	-31.4%		1,118		1,242	-10.0%		2,953		3,987	-25.9%
Total banking and financial service revenue		17,553		18,239	-3.8%		18,542		18,446	0.5%		54,169		55,079	-1.7%
Net gain (loss) on:
Sale of securities available for sale							3,498		-	100.0%		8,274		-	100.0%
Early extinguishment of debt							-		-	0.0%		(7)		-	-100.0%
Other non-interest income		103		275	-62.5%		138		174	-20.7%		346		758	-54.4%
Total non-interest income, net	$	17,656	$	18,514	-4.6%	$	22,178	$	18,620	19.1%	$	62,782	$	55,837	12.4%

TABLE 3 - NON-INTEREST EXPENSES SUMMARY

	Quarter Ended March 31,					Quarter Ended September 30,					Nine-Month Period Ended September 30,
	2019		2018		Variance %	2019		2018		Variance %	2019		2018		Variance %
	(Dollars in thousands)					(Dollars in thousands)
Compensation and employee benefits	$	20,341	$	20,608	-1.3%	$	20,500	$	18,495	10.8%	$	60,716	$	57,202	6.1%
Occupancy, equipment and infrastructure costs		7,746		7,768	-0.3%		7,307		8,388	-12.9%		22,564		25,322	-10.9%
Electronic banking charges		5,065		4,966	2.0%		5,505		5,586	-1.5%		15,698		15,968	-1.7%
Professional and service fees							3,662		3,077	19.0%		10,297		8,917	15.5%
Loss on sale of foreclosed real estate, other repossessed assets and credit related expenses		3,366		3,645	-7.7%		2,889		3,946	-26.8%		8,839		9,880	-10.5%
Professional and service fees		3,208		2,694	19.1%
Information technology expenses		2,507		2,009	24.8%		2,247		2,056	9.3%		6,953		6,064	14.7%
Taxes, other than payroll and income taxes		2,154		2,260	-4.7%		2,235		2,175	2.8%		6,530		6,820	-4.3%
Advertising, business promotion, and strategic initiatives		1,211		1,347	-10.1%		1,333		1,329	0.3%		3,859		3,700	4.3%
Loan servicing and clearing expenses		1,209		1,161	4.1%		1,194		1,251	-4.6%		3,562		3,639	-2.1%
Insurance		1,146		1,478	-22.5%
Merger and restructuring charges							1,556		-	100.0%		2,556		-	100.0%
Communication		741		885	-16.3%		956		927	3.1%		2,556		2,627	-2.7%
Printing, postage, stationery and supplies		578		644	-10.2%		672		499	34.7%		1,885		1,748	7.8%
Insurance							(366)		1,620	-122.6%		2,057		4,580	-55.1%
Director and investor relations		230		240	-4.2%		374		223	67.7%		934		800	16.8%
Other		2,650		2,416	9.7%		663		1,369	-51.6%		5,325		8,095	-34.2%
Total non-interest expenses	$	52,152	$	52,121	0.1%	$	50,727	$	50,941	-0.4%	$	154,331	$	155,362	-0.7%
Relevant ratios and data:
Efficiency ratio		52.50%		56.51%			51.11%		50.58%			51.83%		53.77%
Compensation and benefits to non-interest expense		39.00%		39.54%			40.41%		36.31%			39.34%		36.82%
Compensation to average total assets owned		1.23%		1.32%			1.27%		1.14%			1.24%		1.20%
Average number of employees		1,394		1,367			1,436		1,365			1,436		1,365
Average compensation per employee	$	14.59	$	15.08		$	14.28	$	13.55		$	42.28	$	41.91
Average loans per average employee	$	3,245	$	3,061		$	3,161	$	3,234		$	3,147	$	3,155

TABLE 4 - ASSETS SUMMARY AND COMPOSITION

	March 31		December 31,		Variance	September 30		December 31,		Variance
	2019		2018		%	2019		2018		%
	(Dollars in thousands)					(Dollars in thousands)
Investments:
FNMA and FHLMC certificates	$	937,278	$	978,071	-4.2%	$	424,169	$	978,071	-56.6%
Obligations of US government-sponsored agencies		2,197		2,265	-3.0%		2,028		2,265	-10.5%
US Treasury securities		10,859		10,805	0.5%		10,939		10,805	1.2%
CMOs issued by US government-sponsored agencies		61,389		64,064	-4.2%		55,103		64,064	-14.0%
GNMA certificates		226,557		210,169	7.8%		25,831		210,169	-87.7%
FHLB stock		12,800		12,644	1.2%		10,525		12,644	-16.8%
Other debt securities		1,189		1,222	-2.7%		1,025		1,222	-16.1%
Other investments		384		364	5.5%		98		364	-73.1%
Total investments		1,252,653		1,279,604	-2.1%		529,718		1,279,604	-58.6%
Loans		4,401,401		4,431,594	-0.7%		4,407,190		4,431,594	-0.6%
Total investments and loans		5,654,054		5,711,198	-1.0%		4,936,908		5,711,198	-13.6%
Other assets:
Cash and due from banks (including restricted cash)		501,357		445,133	12.6%		954,852		445,133	114.5%
Money market investments		7,665		4,930	55.5%		8,035		4,930	63.0%
Foreclosed real estate		30,865		33,768	-8.6%		26,952		33,768	-20.2%
Accrued interest receivable		33,152		34,254	-3.2%		30,470		34,254	-11.0%
Deferred tax asset, net		112,744		113,763	-0.9%		112,602		113,763	-1.0%
Premises and equipment, net		69,017		68,892	0.2%		69,754		68,892	1.3%
Servicing assets		10,623		10,716	-0.9%		10,125		10,716	-5.5%
Derivative assets		110		347	-68.3%		13		347	-96.3%
Goodwill		86,069		86,069	0.0%		86,069		86,069	0.0%
Right of use assets		20,860		-	100.0%		19,318		-	100.0%
Other assets and customers' liability on acceptances		76,675		74,282	3.2%		78,407		74,282	5.6%
Total other assets		949,137		872,154	8.8%		1,396,597		872,154	60.1%
Total assets	$	6,603,191	$	6,583,352	0.3%	$	6,333,505	$	6,583,352	-3.8%
Investment portfolio composition:
FNMA and FHLMC certificates		74.8%		76.5%			80.0%		76.5%
Obligations of US government-sponsored agencies		0.2%		0.2%			0.4%		0.2%
US Treasury securities		0.9%		0.8%			2.1%		0.8%
CMOs issued by US government-sponsored agencies		4.9%		5.0%			10.4%		5.0%
GNMA certificates		18.1%		16.4%			4.9%		16.4%
FHLB stock		1.0%		1.0%			2.0%		1.0%
Other debt securities and other investments		0.1%		0.1%			0.2%		0.1%
		100.0%		100.0%			100.0%		100.0%

TABLE 5 — LOANS RECEIVABLE COMPOSITION	TABLE 5 — LOANS RECEIVABLE COMPOSITION					TABLE 5 — LOANS RECEIVABLE COMPOSITION
	March 31		December 31,		Variance	September 30		December 31,		Variance
	2019		2018		%	2019		2018		%
	(In thousands)					(In thousands)
Originated and other loans and leases held for investment:
Mortgage	$	651,423	$	668,809	-2.6%	$	589,383	$	668,809	-11.9%
Commercial		1,569,551		1,597,588	-1.8%		1,573,629		1,597,588	-1.5%
Consumer		350,543		348,980	0.4%		362,358		348,980	3.8%
Auto and leasing		1,167,482		1,129,695	3.3%		1,266,066		1,129,695	12.1%
		3,738,999		3,745,072	-0.2%		3,791,436		3,745,072	1.2%
Allowance for loan and lease losses on originated and other loans and leases		(94,035)		(95,188)	-1.2%		(79,089)		(95,188)	-16.9%
		3,644,964		3,649,884	-0.1%		3,712,347		3,649,884	1.7%
Deferred loan costs, net		8,254		7,740	6.6%		9,608		7,740	24.1%
Total originated and other loans held for investment, net		3,653,218		3,657,624	-0.1%		3,721,955		3,657,624	1.8%
Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		2,405		2,546	-5.5%		2,217		2,546	-12.9%
Consumer		22,768		23,988	-5.1%		21,461		23,988	-10.5%
Auto		2,336		4,435	-47.3%		237		4,435	-94.7%
		27,509		30,969	-11.2%		23,915		30,969	-22.8%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20		(1,968)		(2,062)	-4.6%		(1,490)		(2,062)	-27.7%
		25,541		28,907	-11.6%		22,425		28,907	-22.4%
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		484,578		492,890	-1.7%		439,675		492,890	-10.8%
Commercial		176,908		182,319	-3.0%		155,653		182,319	-14.6%
Auto		9,866		14,403	-31.5%		3,883		14,403	-73.0%
		671,352		689,612	-2.6%		599,211		689,612	-13.1%
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30		(42,133)		(42,010)	0.3%		(51,394)		(42,010)	22.3%
		629,219		647,602	-2.8%		547,817		647,602	-15.4%
Total acquired BBVAPR loans, net		654,760		676,509	-3.2%		570,242		676,509	-15.7%
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		62,649		63,392	-1.2%		54,603		63,392	-13.9%
Commercial		46,588		47,826	-2.6%		46,412		47,826	-3.0%
Consumer		856		846	1.2%		802		846	-5.2%
		110,093		112,064	-1.8%		101,817		112,064	-9.1%
Allowance for loan and lease losses on Eurobank loans		(24,352)		(24,971)	-2.5%		(22,370)		(24,971)	-10.4%
Total acquired Eurobank loans, net		85,741		87,093	-1.6%		79,447		87,093	-8.8%
Total acquired loans, net		740,501		763,602	-3.0%		649,689		763,602	-14.9%
Total held for investment, net		4,393,719		4,421,226	-0.6%		4,371,644		4,421,226	-1.1%
Mortgage loans held for sale		7,682		10,368	-25.9%		23,504		10,368	126.7%
Other loans held for sale							12,042		-	100.0%
Total loans, net	$	4,401,401	$	4,431,594	-0.7%	$	4,407,190	$	4,431,594	-0.6%

TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS	TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS															TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS

	March 31, 2019															September 30, 2019
	Higher-Risk Residential Mortgage Loans*															Higher-Risk Residential Mortgage Loans*
											High Loan-to-Value Ratio Mortgages															High Loan-to-Value Ratio Mortgages
	Junior Lien Mortgages					Interest Only Loans					LTV 90% and over					Junior Lien Mortgages					Interest Only Loans					LTV 90% and over
	Carrying					Carrying					Carrying					Carrying					Carrying					Carrying
	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage	Value		Allowance		Coverage
	(In thousands)															(In thousands)
Delinquency:
0 - 89 days	$	8,620	$	305	3.54%	$	7,545	$	84	1.11%	$	52,176	$	897	1.72%	$	7,702	$	210	2.73%	$	7,452	$	173	2.32%	$	66,198	$	1,695	2.56%
90 - 119 days		222		28	12.61%		-		-	0.00%		1,104		46	4.17%		302		23	7.62%		-		-	0.00%		1,917		88	4.59%
120 - 179 days		65		8	12.31%		-		-	0.00%		296		28	9.46%		93		-	0.00%		-		-	0.00%		902		28	3.10%
180 - 364 days		68		17	25.00%		164		23	14.02%		814		88	10.81%		30		-	0.00%		46		-	0.00%		2,151		47	2.19%
365+ days		182		25	13.74%		1,377		202	14.67%		6,428		522	8.12%		98		3	3.06%		743		28	3.77%		12,381		247	1.99%
Total	$	9,157	$	383	4.18%	$	9,086	$	309	3.40%	$	60,818	$	1,581	2.60%	$	8,225	$	236	2.87%	$	8,241	$	201	2.44%	$	83,549	$	2,105	2.52%
Percentage of total loans excluding acquired loans accounted for under ASC 310-30		0.24%					0.24%					1.61%					0.22%					0.22%					2.19%
Refinanced or Modified Loans:
Amount	$	2,226	$	293	13.16%	$	533	$	71	13.32%	$	15,507	$	1,179	7.60%	$	2,140	$	201	9.39%	$	578	$	55	9.52%	$	30,747	$	1,795	5.84%
Percentage of Higher-Risk Loan Category		24.31%					5.87%					25.50%					26.02%					7.01%					36.80%
Loan-to-Value Ratio:
Under 70%	$	6,068	$	245	4.04%	$	1,215	$	6	0.49%	$	-	$	-	-	$	5,456	$	140	2.57%	$	1,037	$	18	1.74%	$	-	$	-	-
70% - 79%		1,304		73	5.60%		1,914		34	1.78%		-		-	-		697		35	5.02%		1,712		29	1.69%		-		-	-
80% - 89%		994		1	0.10%		3,533		116	3.28%		-		-	-		1,447		45	3.11%		3,424		59	1.72%		-		-	-
90% and over		791		64	8.09%		2,424		153	6.31%		60,818		1,581	2.60%		625		16	2.56%		2,068		95	4.59%		83,549		2,105	2.52%
	$	9,157	$	383	4.18%	$	9,086	$	309	3.40%	$	60,818	$	1,581	2.60%	$	8,225	$	236	2.87%	$	8,241	$	201	2.44%	$	83,549	$	2,105	2.52%

* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.	* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.															* Loans may be included in more than one higher-risk loan category and excludes acquired residential mortgage loans.

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

	March 31,		December 31,		Variance	September 30,		December 31,		Variance
		2019	2018		%		2019	2018		%
	(Dollars in thousands)					(Dollars in thousands)
Originated and other loans held for investment
Allowance balance:
Mortgage	$	16,689	$	19,783	-15.6%	$	8,391	$	19,783	-57.6%
Commercial		32,154		30,326	6.0%		22,323		30,326	-26.4%
Consumer		16,085		15,571	3.3%		15,328		15,571	-1.6%
Auto and leasing		29,107		29,508	-1.4%		33,047		29,508	12.0%
Total allowance balance	$	94,035	$	95,188	-1.2%	$	79,089	$	95,188	-16.9%
Allowance composition:
Mortgage		17.8%		20.8%	-14.6%		10.6%		20.8%
Commercial		34.2%		31.9%	7.3%		28.2%		31.9%
Consumer		17.1%		16.4%	4.6%		19.4%		16.4%
Auto and leasing		31.0%		31.0%	-0.2%		41.8%		31.0%
		100.0%		100.0%			100.0%		100.0%
Allowance coverage ratio at end of period applicable to:
Mortgage		2.56%		2.96%	-13.5%		1.42%		2.96%	-52.0%
Commercial		2.05%		1.90%	7.9%		1.42%		1.90%	-25.3%
Consumer		4.59%		4.46%	2.9%		4.23%		4.46%	-5.2%
Auto and leasing		2.49%		2.61%	-4.6%		2.61%		2.61%	0.0%
Total allowance to total originated loans		2.51%		2.54%	-1.2%		2.09%		2.54%	-17.7%
Allowance coverage ratio to non-performing loans:
Mortgage		27.97%		31.05%	-9.9%		39.70%		31.05%	27.9%
Commercial		63.83%		71.43%	-10.6%		62.70%		71.43%	-12.2%
Consumer		405.06%		464.25%	-12.7%		382.44%		464.25%	-17.6%
Auto and leasing		239.31%		218.67%	9.4%		220.03%		218.67%	0.6%
Total		74.53%		77.38%	-3.7%		104.39%		77.38%	34.9%

TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY

	Quarter Ended September 30,					Nine-Month Period Ended September 30,
					Variance					Variance
	2019		2018		%	2019		2018		%
	(Dollars in thousands)
Originated and other loans:
Balance at beginning of period	$	89,952	$	94,218	-4.5%	$	95,188	$	92,718	2.7%
Charge-offs		(42,078)		(18,380)	128.9%		(77,503)		(55,403)	39.9%
Recoveries		7,651		5,978	28.0%		18,026		16,702	7.9%
Provision for loan and lease losses		23,564		13,420	75.6%		43,378		41,219	5.2%
Balance at end of period	$	79,089	$	95,236	-17.0%	$	79,089	$	95,236	-17.0%
Acquired loans:
*BBVAPR loans*
Acquired loans accounted for under ASC 310-20:
Balance at beginning of period	$	1,685	$	2,726	-38.2%	$	2,062	$	3,862	-46.6%
Charge-offs		(341)		(711)	-52.0%		(1,435)		(2,371)	-39.5%
Recoveries		282		267	5.6%		566		902	-37.3%
Provision (recapture) for loan and lease losses		(136)		68	-300.0%		297		(43)	-790.7%
Balance at end of period	$	1,490	$	2,350	-36.6%	$	1,490	$	2,350	-36.6%
Acquired loans accounted for under ASC 310-30:
Balance at beginning of period	$	45,427	$	44,176	2.8%	$	42,010	$	45,755	-8.2%
Provision for loan and lease losses		19,271		807	2288.0%		27,852		2,528	1001.7%
Allowance de-recognition		(13,304)		(1,108)	1100.7%		(18,468)		(4,408)	319.0%
Balance at end of period	$	51,394	$	43,875	17.1%	$	51,394	$	43,875	17.1%

*Eurobank loans*
Balance at beginning of period	$	25,578	$	24,314	5.2%	$	24,971	$	25,174	-0.8%
Provision for loan and lease losses		1,071		306	250.0%		2,197		1,110	97.9%
Allowance de-recognition		(4,279)		(339)	1162.2%		(4,798)		(2,003)	139.5%
Balance at end of period	$	22,370	$	24,281	-7.9%	$	22,370	$	24,281	-7.9%

TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30

	Quarter Ended September 30,					Nine-Month Period Ended September 30,
					Variance					Variance
	2019		2018		%	2019		2018		%
	(Dollars in thousands)
Originated and other loans and leases:
Mortgage
Charge-offs	$	(16,299)	$	(1,429)	1040.6%	$	(17,490)	$	(3,727)	369.3%
Recoveries		493		139	254.7%		1,096		919	19.3%
Total		(15,806)		(1,290)	1125.3%		(16,394)		(2,808)	483.8%
Commercial
Charge-offs		(8,402)		(3,249)	158.6%		(11,634)		(6,396)	81.9%
Recoveries		174		119	46.2%		497		528	-5.9%
Total		(8,228)		(3,130)	162.9%		(11,137)		(5,868)	89.8%
Consumer
Charge-offs		(5,046)		(4,591)	9.9%		(14,005)		(13,438)	4.2%
Recoveries		1,260		278	353.2%		1,850		757	144.4%
Total		(3,786)		(4,313)	-12.2%		(12,155)		(12,681)	-4.1%
Auto
Charge-offs		(12,331)		(9,111)	35.3%		(34,374)		(31,842)	8.0%
Recoveries		5,724		5,442	5.2%		14,583		14,498	0.6%
Total		(6,607)		(3,669)	80.1%		(19,791)		(17,344)	14.1%
Net credit losses
Total charge-offs		(42,078)		(18,380)	128.9%		(77,503)		(55,403)	39.9%
Total recoveries		7,651		5,978	28.0%		18,026		16,702	7.9%
Total	$	(34,427)	$	(12,402)	177.6%	$	(59,477)	$	(38,701)	53.7%
Net credit losses to average loans outstanding:
Mortgage		10.14%		0.77%	1216.9%		3.43%		0.55%	523.6%
Commercial		2.06%		0.83%	148.2%		0.93%		0.55%	69.1%
Consumer		4.00%		4.74%	-15.6%		4.34%		4.69%	-7.5%
Auto		2.10%		1.39%	51.1%		2.19%		2.32%	-5.6%
Total		3.57%		1.38%	158.7%		1.75%		1.20%	46.0%
Recoveries to charge-offs		18.18%		32.52%	-44.1%		23.26%		30.15%	-22.9%
Average originated loans:
Mortgage	$	623,772		667,372	-6.5%	$	637,680		675,191	-5.6%
Commercial		1,597,902		1,512,661	5.6%		1,588,887		1,411,414	12.6%
Consumer		378,967		363,884	4.1%		373,644		360,258	3.7%
Auto		1,258,394		1,057,232	19.0%		1,206,054		996,972	21.0%
Total	$	3,859,035	$	3,601,149	7.2%	$	3,806,265	$	3,443,835	10.5%

TABLE 11 — NON-PERFORMING ASSETS

	September 30,		December 31,		Variance
	2019		2018		(%)
	(Dollars in thousands)
Non-performing assets:
Non-accruing loans
Troubled-Debt Restructuring loans	$	22,057	$	41,679	-47.1%
Other loans		51,341		78,047	-34.2%
Accruing loans
Troubled-Debt Restructuring loans		2,779		4,302	-35.4%
Other loans		646		541	19.4%
Total non-performing loans	$	76,823	$	124,569	-38.3%
Foreclosed real estate		26,952		33,768	-20.2%
Other repossessed assets		3,537		2,986	18.5%
	$	107,312	$	161,323	-33.5%
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy)		1.93%		2.76%	-30.1%
Non-performing assets to total capital		11.81%		16.13%	-26.8%