December 16, 2020
By EDGAR Correspondence
Michelle Miller
Sharon Blume
Office of Finance
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: OFG Bancorp
Form 10-K for the Fiscal Period ending December 31, 2019
Filed March 3, 2020
Form 10-Q for the Quarterly Period ending September 30, 2020
Filed November 6, 2020
Form 8-K
Filed October 23, 2020
File No. 001-12647
Dear Ms. Miller and Ms. Blume:
We refer to the comment letter, dated December 7, 2020 (the “Comment Letter”), from the staff
(the “Staff”) of the Office of Finance, Division of Corporation Finance of the Securities and
Exchange Commission (the “Commission”) concerning the OFG Bancorp (the “Company”)
filings referenced above (the “December 31
st
th
the “October 23
rd
We have set forth below the text of each of the Staff’s comments, as set forth in the Comment
Letter, followed by the Company’s response.
* * * * *
December 31
st
Business
Loan Underwriting, page 1
Comment 1
You disclose that commercial loans bear interest rates that float with the prime rate, Libor,
or another established index. Please disclose in future filings, your Libor exposure and the
potential impact to your financial statements from the expected discontinuation of Libor.
Please also include a risk factor concerning your Libor exposure, as appropriate.
Response 1
The Company will disclose in future filings our Libor exposure and potential impact in our
financial statements from the expected discontinuation of Libor and a risk factor concerning our
Libor exposure as follows:
On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates the
London Interbank Offered Rate (“LIBOR”), publicly announced that it intends to stop
persuading or compelling banks to submit LIBOR rates after 2021. It is expected that a transition
away from the widespread use of LIBOR to alternative rates will occur over the course of the
next several years.
On April 3, 2018, the Federal Reserve began publishing three new reference rates, including the
Secured Overnight Financing Rate (“SOFR”). The Alternative Reference Rates Committee
(ARRC) has recommended SOFR as the alternative to USD LIBOR and published fallback
interest rate consultations for public comment as well as a Paced Transition Plan to SOFR use.
The Financial Stability Board has taken an interest in LIBOR and possible replacement indices
as a matter of risk management. The International Organization of Securities Commissions, or
IOSCO, has been active in this area and is expected to call on market participants to have backup
options if a reference rate, such as LIBOR, ceases publication. The International Swap Dealers
Association has published guidance on interest rate benchmarks and alternatives in July and
August 2018.
On November 30th, 2020 the Board of Governors of the Federal Reserve System, the Office of
the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (collectively,
the agencies) issued an Interagency Statement on LIBOR Transition to encourage banks to
transition away from U.S. dollar (USD) LIBOR as soon as practicable. The Statement exposes
that the LIBOR transition is a significant event that banks should closely manage and further
explains that new financial contracts should either utilize a reference rate other than LIBOR or
have robust fallback language that includes a clearly defined alternative reference rate after
LIBOR’s discontinuation. Separately, the agencies recently issued a statement that says a bank
may use any reference rate for its loans that the bank determines to be appropriate for its funding
model and customer needs.
The key aspect of this Statement is that the administrator of LIBOR announced it will consult on
its intention to cease the publication of the one week and two month USD LIBOR settings
immediately following the LIBOR publication on December 31, 2021, and the remaining USD
LIBOR settings immediately following the LIBOR publication on June 30, 2023. This extension
allows most USD LIBOR contracts to mature before LIBOR experiences disruptions. Failure to
prepare for disruptions to USD LIBOR, including operating with insufficiently robust fallback
language, could undermine financial stability and banks’ safety and soundness. The statement
does go on to clearly specify that it should not be read as announcing that the LIBOR benchmark
has ceased, or will cease, to be provided permanently or indefinitely or that it is not, or no longer
will be, representative for the purposes of language adopted by the International Swaps and
Derivatives Association (ISDA). Recently, ISDA launched the IBOR Fallbacks Supplement and
IBOR Fallbacks Protocol, marking a major step in reducing the systemic impact of a key
interbank offered rate becoming unavailable while market participants continue to have exposure
to that rate. The supplement will amend ISDA’s standard definitions for interest rate derivatives
to incorporate robust fallbacks for derivatives linked to certain IBORs, with the changes coming
into effect on January 25, 2021.
Oriental’s LIBOR exposure is mainly concentrated within the commercial loan portfolio.
The Company has identified its LIBOR-based contracts that will be impacted by the cessation of
LIBOR and is incorporating fallback language in negotiated contracts and incorporating non-
LIBOR reference rate and/or fallback language in new contracts to prepare for these changes.
Furthermore, management has established a LIBOR transition team to lead the Company in the
execution of its project plan.
The replacement of LIBOR creates operational and market risks that will become clear as
replacement choices are developed. We will continue to assess all of our contracts and financial
instruments that are directly or indirectly dependent on LIBOR to determine what impact the
replacement of LIBOR will have on us. Uncertainty as to the nature of such potential changes or
other reforms may adversely affect our financial condition and results of operations.
In March 2020, the FASB issued guidance within ASU 2020-04, Reference Rate Reform (Topic
848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in response to
the scheduled discontinuation of LIBOR on December 31, 2021. The amendments in this Update
provide optional guidance designed to provide relief from the accounting analysis and impacts
that may otherwise be required for modifications to agreements (e.g., loans, debt securities,
derivatives, borrowings) necessitated by reference rate reform. As of December 31, 2020, we
have not yet elected any optional expedients related to contract modifications or hedging
relationships as outlined in this ASU. However, we will continue to evaluate if we will elect
these optional expedients in the future.
Financial Highlights
Year ended 2019, page 31
Comment 2
We note that you disclose non-GAAP adjusted net income excluding the impact of
"qualitative factors adjustment" as a result of sustained favorable macroeconomic
conditions in Puerto Rico. It appears that this adjustment represents a tailored accounting
principal prohibited by Rule 100(b) of Regulation G, as discussed in Question 100.04 of the
Non-GAAP Financial Measures Compliance and Disclosures Interpretations (CD&Is).
Please remove this adjustment from future filings. Alternatively, tell us how you comply
with the guidance.
Response 2
The Company respectfully acknowledges the Staff’s comment and will remove the impact of
"qualitative factors adjustment" from the non-GAAP adjusted net income in future filings.
September 30
th
Note 5 - Loans, page 27
Comment 3
We note that you classify certain loans as US Loan Program. Please clarify in future
filings the basis for this classification, including customer and or loan characteristics as
well as distinct credit quality features.
Response 3
The Company will disclose in future filings the basis for this classification, including customer
and or loan characteristics as well as distinct credit quality features as follows:
Oriental’s lending activities in the continental United States – referred to as the U.S. Loan
Program – are conducted through Oriental International Bank and OFG USA LLC. These
activities include the purchase of middle market senior secured cash flow loan participations and
the purchase of participations of loans to small and medium sized businesses.
October 23
rd
Table 8-3: Reconciliation of GAAP to Non-GAAP with adjustments to exclude the impact
of significant events, page 15
Comment 4
We note that you disclose non-GAAP adjusted net income including the impact of
additional provision for credit losses due to Covid-19. Please tell us how you were able to
differentiate between changes in expected credit losses directly related to Covid-19 and
credit losses attributable to other market factors and conditions, including how this
adjustment is calculated. In addition, tell us how you plan to report this adjustment going
forward as the impact from macroeconomic conditions due to COVID subsides. Refer to
Rule 100(b) of Regulation G, as discussed in Question 100.4 of the Non-GAAP Financial
Measures Compliance and Disclosures Interpretations (CD&Is)
.
Response 4
The Company respectfully acknowledges the Staff’s comment and has determined to remove the
impact of additional provision for credit losses due to Covid-19 in non-GAAP adjusted net
income in future filings for reasons discussed in this paragraph. The Covid-19 pandemic was an
unprecedented event. As a result, the Company changed during the first quarter of 2020 the
macroeconomic scenario previously selected at implementation of the current expected credit
loss (CECL) methodology at the beginning of the year to consider the worsening of the current
economic environment. The Company also identified the need to make a qualitative adjustment
to the loan portfolios with inherent risk in this economic environment for conditions not
considered in the selected macroeconomic scenario. This adjustment was calculated through our
CECL model considering the impact of these changes on our ACL reserve. As the economy
evolves in subsequent quarters and we continue to make changes to our provisions we
understand that continuing to include Non-GAAP adjustments for such changes may not
continue to comply with Rule 100(b) of Regulation G, as discussed in Question 100.4 of the
Non-GAAP Financial Measures Compliance and Disclosures Interpretations (CD&Is).
Comment 5
We note that you disclose non-GAAP adjusted net income including the impact of Covid-
19 expenses. Please tell us, and enhance future filings to describe the nature of these
expenses and how you were able to determine they are incremental to your normal
operations and nonrecurring. Refer to Rule 100(b) of Regulation G, as discussed in
Question 100.1 of the Non-GAAP Financial Measures Compliance and Disclosures
Interpretations (CD&Is).
Response 5
Covid-19 expenses mainly represented expenses incurred within our premises, as acrylic shields,
face shields and masks, and cleaning and disinfecting costs, in order to control pandemic spread
and keep customers and employees safe, and also included employee Covid-19 testing. These
expenses are expected to be incurred while the pandemic continues. The Company will evaluate
in each subsequent filing based on the facts and circumstances if they continue to be incremental
and nonrecurring.
* * * * *
The Company acknowledges that it is responsible for the accuracy and adequacy of the
disclosure in the reports and other filings it makes with the Commission.
We are hopeful that we have adequately addressed the Staff’s comments. If you have any
questions or comments regarding the foregoing, please do not hesitate to contact me at
787-771-2951.
Very truly yours,
/s/ Maritza Arizmendi Díaz
Maritza Arizmendi Díaz
Executive Vice President and
Chief Financial Officer
Cc José Rafael Fernández
President, CEO, Vice Chairman of the Board