SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-12647
OFG Bancorp
Incorporated in the Commonwealth of Puerto Rico, IRS Employer Identification No. 66-0538893
Principal Executive Offices:
254 Muñoz Rivera Avenue
San Juan, Puerto Rico 00918
Telephone Number: (787) 771-6800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ý Non-Accelerated Filer ☐ Smaller Reporting Company ☐ (Do not check if a smaller reporting company)
Emerging Growth Company ☐
If an Emerging Growth Company,emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
Number of shares outstanding of the registrant’s common stock, as of the latest practicable date:
43,947,44251,293,924 common shares ($1.00 par value per share) outstanding as of October 31, 20172018
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION | Page | ||
Item 1. |
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| Unaudited Consolidated Statements of Changes in Stockholders’ Equity |
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| Notes to Unaudited Consolidated Financial Statements |
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| Note 1 – Organization, Consolidation and Basis of Presentation |
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| Note 7 – FDIC |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II – OTHER INFORMATION |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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FORWARD-LOOKING STATEMENTS
The information included in this quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the financial condition, results of operations, plans, objectives, future performance and business of OFG Bancorp (“we,” “our,” “us” or “Oriental”), including, but not limited to, statements with respect to the adequacy of the allowance for loan losses, delinquency trends, market risk and the impact of interest rate changes, capital markets conditions, capital adequacy and liquidity, and the effect of legal proceedings and new accounting standards on the Oriental’s financial condition and results of operations. All statements contained herein that are not clearly historical in nature are forward-looking, and the words “anticipate,” “believe,” “continues,” “expect,” “estimate,” “intend,” “project” and similar expressions and future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may,” or similar expressions are generally intended to identify forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by management that are difficult to predict. Various factors, some of which by their nature are beyond Oriental’s control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements. Factors that might cause such a difference include, but are not limited to:
· the rate of growth in the economy and employment levels, as well as general business and economic conditions;
· changes in interest rates, as well as the magnitude of such changes;
· the credit default by the municipalities of the government of Puerto Rico;
· amendments to the fiscal plan approved by the Financial Oversight and Management Board offor Puerto Rico;
· determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations;
· the impact of property, credit and other losses in Puerto Rico as a result of hurricanes, Irmaearthquakes and Maria;other natural disasters;
· the amount of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, which suffered catastrophic damages caused by hurricane Maria;
· the pace and magnitude of Puerto Rico’s economic recovery;
·the potential impact of damages from future hurricanes and natural disasters in Puerto Rico;
· the fiscal and monetary policies of the federal government and its agencies;
· changes in federal bank regulatory and supervisory policies, including required levels of capital;
· the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico;
· the performance of the stock and bond markets;
· competition in the financial services industry; and
· possible legislative, tax or regulatory changes.
Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; Oriental’s ability to grow its core businesses; decisions to downsize, sell or close units or otherwise change Oriental’s business mix; and management’s ability to identify and manage these and other risks.
All forward-looking statements included in this quarterly report on Form 10-Q are based upon information available to Oriental as of the date of this report, and other than as required by law, including the requirements of applicable securities laws, Oriental assumes no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 20172018 AND DECEMBER 31, 20162017
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
|
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
| (In thousands) |
| (In thousands) | ||||||||
ASSETS |
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Cash and cash equivalents: |
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Cash and due from banks |
| $ | 714,196 |
| $ | 504,833 |
| $ | 537,945 |
| $ | 478,182 |
Money market investments |
|
| 6,530 |
|
| 5,606 |
|
| 5,805 |
|
| 7,021 |
Total cash and cash equivalents |
|
| 720,726 |
|
| 510,439 |
|
| 543,750 |
|
| 485,203 |
Restricted cash |
|
| 3,030 |
|
| 3,030 |
|
| 3,030 |
|
| 3,030 |
Investments: |
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Trading securities, at fair value, with amortized cost of $667 (December 31, 2016 - $667) |
| 284 |
|
| 347 | |||||||
Investment securities available-for-sale, at fair value, with amortized cost of $611,936 (December 31, 2016 - $749,867) |
| 613,423 |
|
| 751,484 | |||||||
Investment securities held-to-maturity, at amortized cost, with fair value of $525,830 (December 31, 2016 - $592,763) |
| 530,178 |
|
| 599,884 | |||||||
Trading securities, at fair value, with amortized cost of $647 (December 31, 2017 - $647) |
| 405 |
|
| 191 | |||||||
Investment securities available-for-sale, at fair value, with amortized cost of $872,895 (December 31, 2017 - $648,800) |
| 848,552 |
|
| 645,797 | |||||||
Investment securities held-to-maturity, at amortized cost, with fair value of $425,066 (December 31, 2017 - $497,681) |
| 444,679 |
|
| 506,064 | |||||||
Federal Home Loan Bank (FHLB) stock, at cost |
| 14,016 |
|
| 10,793 |
| 12,461 |
|
| 13,995 | ||
Other investments |
|
| 3 |
|
| 3 |
|
| 3 |
|
| 3 |
Total investments |
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| 1,157,904 |
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| 1,362,511 |
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| 1,306,100 |
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| 1,166,050 |
Loans: |
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Loans held-for-sale, at lower of cost or fair value |
| 12,114 |
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| 12,499 |
| 8,979 |
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| 12,272 | ||
Loans held for investment, net of allowance for loan and lease losses of $154,161 (December 31, 2016 - $115,937) |
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| 3,952,458 |
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| 4,135,193 | ||||||
Loans held for investment, net of allowance for loan and lease losses of $165,742 (December 31, 2017 - $167,509) |
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| 4,344,001 |
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| 4,044,057 | ||||||
Total loans |
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| 3,964,572 |
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| 4,147,692 |
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| 4,352,980 |
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| 4,056,329 |
Other assets: |
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FDIC indemnification asset |
| - |
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| 14,411 | |||||||
Foreclosed real estate |
| 47,275 |
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| 47,520 |
| 37,868 |
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| 44,174 | ||
Accrued interest receivable |
| 22,736 |
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| 20,227 |
| 33,452 |
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| 49,969 | ||
Deferred tax asset, net |
| 126,041 |
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| 124,200 |
| 122,934 |
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| 127,421 | ||
Premises and equipment, net |
| 67,994 |
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| 70,407 |
| 67,762 |
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| 67,860 | ||
Customers' liability on acceptances |
| 16,486 |
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| 23,765 |
| 28,682 |
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| 27,663 | ||
Servicing assets |
| 9,818 |
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| 9,858 |
| 10,866 |
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| 9,821 | ||
Derivative assets |
| 809 |
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| 1,330 |
| 1,265 |
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| 771 | ||
Goodwill |
| 86,069 |
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| 86,069 |
| 86,069 |
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| 86,069 | ||
Other assets |
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| 64,757 |
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| 80,365 |
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| 61,916 |
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| 64,693 |
Total assets |
| $ | 6,288,217 |
| $ | 6,501,824 |
| $ | 6,656,674 |
| $ | 6,189,053 |
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See notes to unaudited financial statements | ||||||||||||
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
1
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 20172018 AND DECEMBER 31, 20162017 (CONTINUED)
|
| September 30, |
| December 31, |
| September 30, |
| December 31, | ||||
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| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
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| (In thousands) |
| (In thousands) | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Deposits: |
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Demand deposits |
| $ | 1,925,721 |
| $ | 1,939,764 |
| $ | 2,304,067 |
| $ | 2,039,126 |
Savings accounts |
| 1,360,080 |
|
| 1,196,232 |
| 1,243,535 |
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| 1,251,398 | ||
Time deposits |
|
| 1,540,603 |
|
| 1,528,491 |
|
| 1,541,391 |
|
| 1,508,958 |
Total deposits |
|
| 4,826,404 |
|
| 4,664,487 |
|
| 5,088,993 |
|
| 4,799,482 |
Borrowings: |
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Securities sold under agreements to repurchase |
| 283,080 |
|
| 653,756 |
| 378,237 |
|
| 192,869 | ||
Advances from FHLB |
| 100,091 |
|
| 105,454 |
| 73,531 |
|
| 99,643 | ||
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 36,083 |
|
| 36,083 | ||
Other borrowings |
|
| - |
|
| 61 |
|
| 192 |
|
| 153 |
Total borrowings |
|
| 419,254 |
|
| 795,354 |
|
| 488,043 |
|
| 328,748 |
Other liabilities: |
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Derivative liabilities |
| 1,677 |
|
| 2,437 |
| 622 |
|
| 1,281 | ||
Acceptances executed and outstanding |
| 16,486 |
|
| 23,765 |
| 28,682 |
|
| 27,644 | ||
Accrued expenses and other liabilities |
|
| 86,766 |
|
| 95,370 |
|
| 80,448 |
|
| 86,791 |
Total liabilities |
|
| 5,350,587 |
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| 5,581,413 |
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| 5,686,788 |
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| 5,243,946 |
Commitments and contingencies (See Note 20) |
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Stockholders’ equity: |
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Preferred stock; 10,000,000 shares authorized; |
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1,340,000 shares of Series A, 1,380,000 shares of Series B, and 960,000 shares of Series D issued and outstanding, |
|
|
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| |||||||
December 31, 2016 - 1,340,000 shares; 1,380,000 shares; and 960,000 shares) $25 liquidation value |
| 92,000 |
|
| 92,000 | |||||||
84,000 shares of Series C issued and outstanding (December 31, 2016 - 84,000 shares); $1,000 liquidation value |
| 84,000 |
|
| 84,000 | |||||||
Common stock, $1 par value; 100,000,000 shares authorized; 52,625,869 shares issued: 43,947,442 shares outstanding (December 31, 2016 - 52,625,869; |
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| |||||||
43,914,844) |
| 52,626 |
|
| 52,626 | |||||||
1,340,000 shares of Series A, 1,380,000 shares of Series B, and 960,000 shares of Series D issued and outstanding |
|
|
|
|
| |||||||
(December 31, 2017 - 1,340,000 shares; 1,380,000 shares; and 960,000 shares) $25 liquidation value |
| 92,000 |
|
| 92,000 | |||||||
84,000 shares of Series C issued and outstanding (December 31, 2017 - 84,000 shares); $1,000 liquidation value |
| 84,000 |
|
| 84,000 | |||||||
Common stock, $1 par value; 100,000,000 shares authorized; 52,625,869 shares issued: 44,005,741 shares outstanding (December 31, 2017 - 52,625,869; |
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| |||||||
43,947,442) |
| 52,626 |
|
| 52,626 | |||||||
Additional paid-in capital |
| 541,302 |
|
| 540,948 |
| 542,078 |
|
| 541,600 | ||
Legal surplus |
| 79,795 |
|
| 76,293 |
| 87,563 |
|
| 81,454 | ||
Retained earnings |
| 191,567 |
|
| 177,808 |
| 236,120 |
|
| 200,878 | ||
Treasury stock, at cost, 8,678,427 shares (December 31, 2016 - 8,711,025 shares) |
| (104,502) |
|
| (104,860) | |||||||
Accumulated other comprehensive income, net of tax of $223 (December 31, 2016 $983) |
|
| 842 |
|
| 1,596 | ||||||
Treasury stock, at cost, 8,620,003 shares (December 31, 2017 - 8,678,427 shares) |
| (103,706) |
|
| (104,502) | |||||||
Accumulated other comprehensive (loss), net of tax of $2,904 (December 31, 2017 - $564) |
|
| (20,795) |
|
| (2,949) | ||||||
Total stockholders’ equity |
|
| 937,630 |
|
| 920,411 |
|
| 969,886 |
|
| 945,107 |
Total liabilities and stockholders’ equity |
| $ | 6,288,217 |
| $ | 6,501,824 |
| $ | 6,656,674 |
| $ | 6,189,053 |
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|
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See notes to unaudited financial statements | ||||||||||||
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
2
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONOPERATIONS
AS OFFOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND DECEMBER 31, 2016 (CONTINUED)2017
| Quarter Ended September 30, | Nine-Month Period Ended September 30, | ||||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
| (In thousands, except per share data) | |||||||||||
Interest income: |
|
|
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|
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Loans | $ | 84,016 |
| $ | 82,467 |
| $ | 237,057 |
| $ | 237,355 |
|
Mortgage-backed securities |
| 8,173 |
|
| 6,245 |
|
| 23,258 |
|
| 20,728 |
|
Investment securities and other |
| 1,948 |
|
| 1,643 |
|
| 4,998 |
|
| 4,390 |
|
Total interest income |
| 94,137 |
|
| 90,355 |
|
| 265,313 |
|
| 262,473 |
|
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
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Deposits |
| 8,605 |
|
| 7,601 |
|
| 23,554 |
|
| 22,606 |
|
Securities sold under agreements to repurchase |
| 2,242 |
|
| 1,282 |
|
| 5,159 |
|
| 6,260 |
|
Advances from FHLB and other borrowings |
| 517 |
|
| 596 |
|
| 1,339 |
|
| 1,799 |
|
Subordinated capital notes |
| 496 |
|
| 398 |
|
| 1,402 |
|
| 1,149 |
|
Total interest expense |
| 11,860 |
|
| 9,877 |
|
| 31,454 |
|
| 31,814 |
|
Net interest income |
| 82,277 |
|
| 80,478 |
|
| 233,859 |
|
| 230,659 |
|
Provision for loan and lease losses, net |
| 14,601 |
|
| 44,042 |
|
| 44,808 |
|
| 88,232 |
|
Net interest income after provision for loan and lease losses |
| 67,676 |
|
| 36,436 |
|
| 189,051 |
|
| 142,427 |
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Banking service revenue |
| 10,797 |
|
| 9,923 |
|
| 32,404 |
|
| 31,007 |
|
Wealth management revenue |
| 6,407 |
|
| 6,016 |
|
| 18,688 |
|
| 18,747 |
|
Mortgage banking activities |
| 1,242 |
|
| 1,274 |
|
| 3,987 |
|
| 2,820 |
|
Total banking and financial service revenues |
| 18,446 |
|
| 17,213 |
|
| 55,079 |
|
| 52,574 |
|
|
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|
|
|
|
|
|
|
|
|
FDIC shared-loss benefit, net |
| - |
|
| - |
|
| - |
|
| 1,403 |
|
Net gain on: |
|
|
|
|
|
|
|
|
|
|
|
|
Sale of securities |
| - |
|
| 4 |
|
| - |
|
| 6,896 |
|
Derivatives |
| - |
|
| - |
|
| - |
|
| 103 |
|
Early extinguishment of debt |
| - |
|
| - |
|
| - |
|
| (80) |
|
Other non-interest income |
| 174 |
|
| 695 |
|
| 758 |
|
| 976 |
|
Total non-interest income, net |
| 18,620 |
|
| 17,912 |
|
| 55,837 |
|
| 61,872 |
|
|
|
|
|
|
|
|
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See notes to unaudited consolidated financial statements |
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3
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 2016
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands, except per share data) | ||||||||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
Loans | $ | 82,467 |
| $ | 82,604 |
| $ | 237,355 |
| $ | 243,431 |
Mortgage-backed securities |
| 6,245 |
|
| 6,997 |
|
| 20,728 |
|
| 23,215 |
Investment securities and other |
| 1,643 |
|
| 983 |
|
| 4,390 |
|
| 3,152 |
Total interest income |
| 90,355 |
|
| 90,584 |
|
| 262,473 |
|
| 269,798 |
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 7,601 |
|
| 7,331 |
|
| 22,606 |
|
| 21,822 |
Securities sold under agreements to repurchase |
| 1,282 |
|
| 4,272 |
|
| 6,260 |
|
| 14,629 |
Advances from FHLB and other borrowings |
| 596 |
|
| 1,237 |
|
| 1,799 |
|
| 5,574 |
Subordinated capital notes |
| 398 |
|
| 817 |
|
| 1,149 |
|
| 2,559 |
Total interest expense |
| 9,877 |
|
| 13,657 |
|
| 31,814 |
|
| 44,584 |
Net interest income |
| 80,478 |
|
| 76,927 |
|
| 230,659 |
|
| 225,214 |
Provision for loan and lease losses, net |
| 44,042 |
|
| 23,469 |
|
| 88,232 |
|
| 51,703 |
Net interest income after provision for loan and lease losses |
| 36,436 |
|
| 53,458 |
|
| 142,427 |
|
| 173,511 |
Non-interest income: |
|
|
|
|
|
|
|
|
|
|
|
Banking service revenue |
| 9,923 |
|
| 10,330 |
|
| 31,007 |
|
| 30,667 |
Wealth management revenue |
| 6,016 |
|
| 6,526 |
|
| 18,747 |
|
| 19,719 |
Mortgage banking activities |
| 1,274 |
|
| 1,421 |
|
| 2,820 |
|
| 3,300 |
Total banking and financial service revenues |
| 17,213 |
|
| 18,277 |
|
| 52,574 |
|
| 53,686 |
|
|
|
|
|
|
|
|
|
|
|
|
FDIC shared-loss benefit (expense), net |
| - |
|
| (3,296) |
|
| 1,403 |
|
| (10,745) |
Net gain (loss) on: |
|
|
|
|
|
|
|
|
|
|
|
Sale of securities |
| 4 |
|
| - |
|
| 6,896 |
|
| 12,207 |
Derivatives |
| - |
|
| 17 |
|
| 103 |
|
| 4 |
Early extinguishment of debt |
| - |
|
| - |
|
| (80) |
|
| (12,000) |
Other non-interest income |
| 695 |
|
| 5,217 |
|
| 976 |
|
| 5,721 |
Total non-interest income, net |
| 17,912 |
|
| 20,215 |
|
| 61,872 |
|
| 48,873 |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited financial statements | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
4
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016 (CONTINUED)
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||
Non-interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Compensation and employee benefits |
| 19,882 |
| 19,168 |
| 59,546 |
| 57,864 |
| 18,495 |
| 19,882 |
| 57,202 |
| 59,546 | ||||||
Professional and service fees |
| 3,113 |
| 2,889 |
| 9,575 |
| 8,685 |
| 3,077 |
| 3,113 |
| 8,917 |
| 9,575 | ||||||
Occupancy and equipment |
| 8,276 |
| 7,353 |
| 24,012 |
| 22,995 |
| 8,388 |
| 8,276 |
| 25,322 |
| 24,012 | ||||||
Insurance |
| 1,052 |
| 1,242 |
| 3,834 |
| 7,547 |
| 1,620 |
| 1,052 |
| 4,580 |
| 3,834 | ||||||
Electronic banking charges |
| 5,021 |
| 5,077 |
| 15,373 |
| 15,613 |
| 5,586 |
| 5,021 |
| 15,968 |
| 15,373 | ||||||
Information technology expenses |
| 2,046 |
| 1,862 |
| 6,114 |
| 5,124 |
| 2,056 |
| 2,046 |
| 6,064 |
| 6,114 | ||||||
Advertising, business promotion, and strategic initiatives |
| 1,405 |
| 1,347 |
| 4,205 |
| 4,133 |
| 1,329 |
| 1,405 |
| 3,700 |
| 4,205 | ||||||
Loss on sale of foreclosed real estate and other repossessed assets |
| 1,395 |
| 2,970 |
| 4,508 |
| 9,063 |
| 1,210 |
| 1,395 |
| 2,828 |
| 4,508 | ||||||
Loan servicing and clearing expenses |
| 1,134 |
| 2,844 |
| 3,592 |
| 6,940 |
| 1,251 |
| 1,134 |
| 3,639 |
| 3,592 | ||||||
Taxes, other than payroll and income taxes |
| 2,243 |
| 2,385 |
| 7,007 |
| 7,386 |
| 2,175 |
| 2,243 |
| 6,820 |
| 7,007 | ||||||
Communication |
| 855 |
| 748 |
| 2,682 |
| 2,434 |
| 927 |
| 855 |
| 2,627 |
| 2,682 | ||||||
Printing, postage, stationary and supplies |
| 586 |
| 602 |
| 1,889 |
| 1,927 |
| 499 |
| 586 |
| 1,748 |
| 1,889 | ||||||
Director and investor relations |
| 221 |
| 233 |
| 775 |
| 812 |
| 223 |
| 221 |
| 800 |
| 775 | ||||||
Credit related expenses |
| 1,714 |
| 3,719 |
| 6,557 |
| 8,177 |
| 2,736 |
| 1,714 |
| 7,052 |
| 6,557 | ||||||
Other |
| 1,526 |
|
| 2,487 |
|
| 5,300 |
|
| 4,908 |
| 1,369 |
|
| 1,526 |
|
| 8,095 |
|
| 5,300 |
Total non-interest expense |
| 50,469 |
|
| 54,926 |
|
| 154,969 |
|
| 163,608 |
| 50,941 |
|
| 50,469 |
|
| 155,362 |
|
| 154,969 |
Income before income taxes |
| 3,879 |
|
| 18,747 |
|
| 49,330 |
|
| 58,776 |
| 35,355 |
|
| 3,879 |
|
| 89,526 |
|
| 49,330 |
Income tax expense |
| 560 |
|
| 3,627 |
|
| 13,757 |
|
| 15,146 |
| 12,255 |
|
| 560 |
|
| 29,860 |
|
| 13,757 |
Net income |
| 3,319 |
|
| 15,120 |
|
| 35,573 |
|
| 43,630 |
| 23,100 |
|
| 3,319 |
|
| 59,666 |
|
| 35,573 |
Less: dividends on preferred stock |
| (3,465) |
|
| (3,465) |
|
| (10,396) |
|
| (10,396) |
| (3,466) |
|
| (3,465) |
|
| (10,396) |
|
| (10,396) |
(Loss) income available to common shareholders | $ | (146) |
| $ | 11,655 |
| $ | 25,177 |
| $ | 33,234 | |||||||||||
Income (loss) available to common shareholders | $ | 19,634 |
| $ | (146) |
| $ | 49,270 |
| $ | 25,177 | |||||||||||
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ | - |
| $ | 0.27 |
| $ | 0.57 |
| $ | 0.76 | $ | 0.45 |
| $ | - |
| $ | 1.12 |
| $ | 0.57 |
Diluted | $ | - |
| $ | 0.26 |
| $ | 0.56 |
| $ | 0.76 | $ | 0.42 |
| $ | - |
| $ | 1.07 |
| $ | 0.56 |
Average common shares outstanding and equivalents |
| 51,102 |
|
| 51,111 |
|
| 51,095 |
|
| 51,091 |
| 51,464 |
|
| 51,102 |
|
| 51,344 |
|
| 51,095 |
Cash dividends per share of common stock | $ | 0.06 |
| $ | 0.06 |
| $ | 0.18 |
| $ | 0.18 | $ | 0.06 |
| $ | 0.06 |
| $ | 0.18 |
| $ | 0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
54
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 20162017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net income | $ | 3,319 |
| $ | 15,120 |
| $ | 35,573 |
| $ | 43,630 | $ | 23,100 |
| $ | 3,319 |
| $ | 59,666 |
| $ | 35,573 |
Other comprehensive income before tax: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Unrealized gain (loss) on securities available-for-sale |
| 1,445 |
| (315) |
|
| 6,766 |
| 12,049 | |||||||||||||
Other comprehensive (loss) income before tax: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Unrealized (loss) gain on securities available-for-sale |
| (6,375) |
| 1,445 |
|
| (21,340) |
| 6,766 | |||||||||||||
Realized gain on investment securities included in net income |
| (4) |
| - |
|
| (6,896) |
| (12,207) |
| - |
| (4) |
|
| - |
| (6,896) | ||||
Unrealized gain on cash flow hedges |
| 56 |
|
| 853 |
|
| 136 |
|
| 1,504 |
| 223 |
|
| 56 |
|
| 1,153 |
|
| 136 |
Other comprehensive income before taxes |
| 1,497 |
|
| 538 |
|
| 6 |
|
| 1,346 | |||||||||||
Other comprehensive (loss) income before taxes |
| (6,152) |
|
| 1,497 |
|
| (20,187) |
|
| 6 | |||||||||||
Income tax effect |
| (348) |
|
| (499) |
|
| (760) |
|
| 501 |
| 619 |
|
| (348) |
|
| 2,341 |
|
| (760) |
Other comprehensive (loss) income after taxes |
| 1,149 |
|
| 39 |
|
| (754) |
|
| 1,847 |
| (5,533) |
|
| 1,149 |
|
| (17,846) |
|
| (754) |
Comprehensive income | $ | 4,468 |
| $ | 15,159 |
| $ | 34,819 |
| $ | 45,477 | $ | 17,567 |
| $ | 4,468 |
| $ | 41,820 |
| $ | 34,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
65
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 20162017
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | |||||||||
| 2017 |
| 2016 | 2018 |
| 2017 |
| ||||
| (In thousands) | (In thousands) | |||||||||
Preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 176,000 |
| $ | 176,000 | $ | 176,000 |
| $ | 176,000 |
|
Balance at end of period |
| 176,000 |
|
| 176,000 |
| 176,000 |
|
| 176,000 |
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 52,626 |
|
| 52,626 |
| 52,626 |
|
| 52,626 |
|
Balance at end of period |
| 52,626 |
|
| 52,626 |
| 52,626 |
|
| 52,626 |
|
Additional paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 540,948 |
| 540,512 |
| 541,600 |
| 540,948 |
| ||
Stock-based compensation expense |
| 811 |
| 1,014 |
| 978 |
| 811 |
| ||
Stock-based compensation excess tax benefit recognized in income |
| (99) |
| - |
| (140) |
| (99) |
| ||
Lapsed restricted stock units |
| (358) |
|
| (834) |
| (360) |
|
| (358) |
|
Balance at end of period |
| 541,302 |
|
| 540,692 |
| 542,078 |
|
| 541,302 |
|
Legal surplus: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 76,293 |
| 70,435 |
| 81,454 |
| 76,293 |
| ||
Transfer from retained earnings |
| 3,502 |
|
| 4,353 |
| 6,109 |
|
| 3,502 |
|
Balance at end of period |
| 79,795 |
|
| 74,788 |
| 87,563 |
|
| 79,795 |
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| 177,808 |
| 148,886 |
| 200,878 |
| 177,808 |
| ||
Net income |
| 35,573 |
| 43,630 |
| 59,666 |
| 35,573 |
| ||
Cash dividends declared on common stock |
| (7,916) |
| (7,909) |
| (7,919) |
| (7,916) |
| ||
Cash dividends declared on preferred stock |
| (10,396) |
| (10,396) |
| (10,396) |
| (10,396) |
| ||
Transfer to legal surplus |
| (3,502) |
|
| (4,353) |
| (6,109) |
|
| (3,502) |
|
Balance at end of period |
| 191,567 |
|
| 169,858 |
| 236,120 |
|
| 191,567 |
|
Treasury stock: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| (104,860) |
| (105,379) |
| (104,502) |
| (104,860) |
| ||
Lapsed restricted stock units |
| 358 |
| 505 |
| 796 |
| 358 |
| ||
Balance at end of period |
| (104,502) |
|
| (104,874) |
| (103,706) |
|
| (104,502) |
|
Accumulated other comprehensive income, net of tax: |
|
|
|
|
| ||||||
Accumulated other comprehensive (loss), net of tax: |
|
|
|
|
|
| |||||
Balance at beginning of period |
| 1,596 |
| 13,997 |
| (2,949) |
| 1,596 |
| ||
Other comprehensive (loss) income, net of tax |
| (754) |
|
| 1,847 | ||||||
Other comprehensive (loss), net of tax |
| (17,846) |
|
| (754) |
| |||||
Balance at end of period |
| 842 |
|
| 15,844 |
| (20,795) |
|
| 842 |
|
Total stockholders’ equity | $ | 937,630 |
| $ | 924,934 | $ | 969,886 |
| $ | 937,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
|
76
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 20162017
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | |||||||||
| 2017 |
| 2016 | 2018 |
| 2017 |
| ||||
| (In thousands) | (In thousands) | |||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 35,573 |
| $ | 43,630 | $ | 59,666 |
| $ | 35,573 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred loan origination fees, net of costs |
| 2,526 |
| 2,849 | |||||||
Amortization of fair value premiums, net of discounts, on acquired loans |
| 5 |
| 39 | |||||||
Amortization of deferred loan origination fees and fair value premiums on acquired loans |
| 3,433 |
| 2,531 |
| ||||||
Amortization of investment securities premiums, net of accretion of discounts |
| 6,108 |
| 6,541 |
| 4,426 |
| 6,108 |
| ||
Amortization of core deposit and customer relationship intangibles |
| 1,105 |
| 1,258 |
| 989 |
| 1,105 |
| ||
Amortization of fair value premiums on acquired deposits |
| - |
| 268 | |||||||
FDIC shared-loss (benefit) expense, net |
| (1,403) |
| 10,745 | |||||||
FDIC shared-loss benefit |
| - |
| (1,403) |
| ||||||
Depreciation and amortization of premises and equipment |
| 6,654 |
| 7,229 |
| 6,642 |
| 6,654 |
| ||
Deferred income tax expense, net |
| (2,619) |
| 15,176 |
| 6,827 |
| (2,619) |
| ||
Provision for loan and lease losses, net |
| 88,232 |
| 51,703 | |||||||
Provision for loan and lease losses |
| 44,808 |
| 88,232 |
| ||||||
Stock-based compensation |
| 811 |
| 1,014 |
| 978 |
| 811 |
| ||
Stock-based compensation excess tax benefit recognized in income |
| (99) |
| - |
| (140) |
| (99) |
| ||
(Gain) loss on: |
|
|
|
|
|
|
|
|
| ||
Sale of loans |
| (275) |
| (792) |
| ||||||
Derivatives |
| 1 |
| (103) |
| ||||||
Sale of securities |
| (6,896) |
| (12,207) |
| - |
| (6,896) |
| ||
Sale of mortgage loans held-for-sale |
| (792) |
| (1,294) | |||||||
Derivatives |
| (103) |
| 78 | |||||||
Early extinguishment of debt |
| 80 |
| 12,000 |
| - |
| 80 |
| ||
Foreclosed real estate |
| 4,938 |
| 10,580 | |||||||
Sale of other repossessed assets |
| 146 |
| (1,498) | |||||||
Sale of premises and equipment |
| (539) |
| 12 | |||||||
Foreclosed real estate and other repossessed assets |
| 2,828 |
| 5,084 |
| ||||||
Sale of other assets |
| (107) |
| (539) |
| ||||||
Originations of loans held-for-sale |
| (103,194) |
| (134,189) |
| (72,512) |
| (103,194) |
| ||
Proceeds from sale of mortgage loans held-for-sale |
| 68,758 |
| 51,238 | |||||||
Proceeds from sale of loans held-for-sale |
| 21,593 |
| 68,758 |
| ||||||
Net (increase) decrease in: |
|
|
|
|
|
|
|
|
| ||
Trading securities |
| 63 |
| (92) |
| (214) |
| 63 |
| ||
Accrued interest receivable |
| (2,509) |
| 2,671 |
| 16,517 |
| (2,509) |
| ||
Servicing assets |
| 40 |
| (938) |
| (1,045) |
| 40 |
| ||
Other assets |
| 14,260 |
| (13,394) |
| 2,405 |
| 14,260 |
| ||
Net increase (decrease) in: |
|
|
|
| |||||||
Net (decrease) in: |
|
|
|
|
| ||||||
Accrued interest on deposits and borrowings |
| (345) |
| (1,013) |
| 643 |
| (345) |
| ||
Accrued expenses and other liabilities |
| (4,745) |
|
| (5,594) |
| (23,836) |
|
| (4,745) |
|
Net cash provided by operating activities |
| 106,055 |
|
| 46,812 |
| 73,627 |
|
| 106,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements | See notes to unaudited consolidated financial statements |
|
87
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 20162017 (CONTINUED)
|
|
|
|
|
| ||||||
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | |||||||||
| 2017 |
| 2016 | 2018 |
| 2017 |
| ||||
| (In thousands) | (In thousands) | |||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
Purchases of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| (128,969) |
| (676) |
| (271,062) |
| (128,969) |
| ||
Investment securities held-to-maturity |
| - |
| (81,261) | |||||||
FHLB stock |
| (26,730) |
| (20,398) |
| (113,506) |
| (26,730) |
| ||
Maturities and redemptions of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| 83,669 |
| 112,444 |
| 89,753 |
| 83,669 |
| ||
Investment securities held-to-maturity |
| 65,877 |
| 56,058 |
| 58,477 |
| 65,877 |
| ||
FHLB stock |
| 23,507 |
| 28,469 |
| 115,040 |
| 23,507 |
| ||
Proceeds from sales of: |
|
|
|
|
|
|
|
|
| ||
Investment securities available-for-sale |
| 256,996 |
| 300,483 |
| 14,746 |
| 256,996 |
| ||
Foreclosed real estate and other repossessed assets, including write-offs |
| 31,829 |
| 36,983 |
| 38,816 |
| 31,829 |
| ||
Proceeds from sale of loans held-for-sale |
| - |
| 1,149 | |||||||
Premises and equipment |
| 569 |
| 48 |
| 1,670 |
| 569 |
| ||
Origination and purchase of loans, excluding loans held-for-sale |
| (546,616) |
| (555,658) |
| (1,015,960) |
| (546,616) |
| ||
Principal repayment of loans, including covered loans |
| 571,098 |
| 616,518 | |||||||
(Repayments to) reimbursements from the FDIC on shared-loss agreements, net |
| (10,125) |
| 824 | |||||||
Principal repayment of loans |
| 632,333 |
| 571,098 |
| ||||||
Repayments to FDIC on shared-loss agreements |
| - |
| (10,125) |
| ||||||
Additions to premises and equipment |
| (4,271) |
| (3,804) |
| (8,107) |
|
| (4,271) |
| |
Net change in restricted cash |
| - |
|
| 319 | ||||||
Net cash provided by investing activities |
| 316,834 |
|
| 491,498 | ||||||
|
|
|
|
|
| ||||||
See notes to unaudited consolidated financial statements | |||||||||||
Net cash (used in) provided by investing activities |
| (457,800) |
|
| 316,834 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
Net increase (decrease) in: |
|
|
|
|
|
|
Deposits |
| 301,195 |
|
| 180,958 |
|
Securities sold under agreements to repurchase |
| 185,308 |
|
| (369,816) |
|
FHLB advances, federal funds purchased, and other borrowings |
| (25,904) |
|
| (5,436) |
|
Restricted units lapsed |
| 436 |
|
| - |
|
Dividends paid on preferred stock |
| (10,397) |
|
| (10,396) |
|
Dividends paid on common stock |
| (7,918) |
|
| (7,912) |
|
Net cash provided (used in) financing activities | $ | 442,720 |
| $ | (212,602) |
|
Net change in cash, cash equivalents and restricted cash |
| 58,547 |
|
| 210,287 |
|
Cash, cash equivalents and restricted cash at beginning of period |
| 488,233 |
|
| 513,469 |
|
Cash, cash equivalents and restricted cash at end of period | $ | 546,780 |
| $ | 723,756 |
|
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities: |
|
|
|
|
|
|
Interest paid | $ | 29,523 |
| $ | 30,777 |
|
Income taxes paid | $ | 13,446 |
| $ | 23 |
|
Mortgage loans securitized into mortgage-backed securities | $ | 59,050 |
| $ | 69,148 |
|
Transfer from loans to foreclosed real estate and other repossessed assets | $ | 36,848 |
| $ | 37,852 |
|
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio | $ | 5,795 |
| $ | 33,647 |
|
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio | $ | 1,247 |
| $ | 112 |
|
Financed sales of foreclosed real estate | $ | 912 |
| $ | 579 |
|
Loans booked under the GNMA buy-back option | $ | 13,325 |
| $ | 12,999 |
|
See notes to unaudited consolidated financial statements |
|
98
OFG BANCORP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 20172018 AND 2016 –2017 (CONTINUED)
|
|
|
|
|
|
| Nine-Month Period Ended September 30, | ||||
| 2017 |
| 2016 | ||
| (In thousands) | ||||
Cash flows from financing activities: |
|
|
|
|
|
Net increase (decrease) in: |
|
|
|
|
|
Deposits |
| 180,958 |
|
| 35,449 |
Securities sold under agreements to repurchase |
| (369,816) |
|
| (287,865) |
FHLB advances, federal funds purchased, and other borrowings |
| (5,436) |
|
| (228,157) |
Subordinated capital notes |
| - |
|
| (66,550) |
Exercise of stock options and restricted units lapsed, net |
| - |
|
| (329) |
Dividends paid on preferred stock |
| (10,396) |
|
| (10,396) |
Dividends paid on common stock |
| (7,912) |
|
| (7,906) |
Net cash used in financing activities | $ | (212,602) |
| $ | (565,754) |
Net change in cash and cash equivalents |
| 210,287 |
|
| (27,444) |
Cash and cash equivalents at beginning of period |
| 510,439 |
|
| 536,709 |
Cash and cash equivalents at end of period | $ | 720,726 |
| $ | 509,265 |
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities: |
|
|
|
|
|
Interest paid | $ | 30,777 |
| $ | 44,316 |
Income taxes paid | $ | 23 |
| $ | 7,389 |
Mortgage loans securitized into mortgage-backed securities | $ | 69,148 |
| $ | 71,315 |
Transfer from loans to foreclosed real estate and other repossessed assets | $ | 37,852 |
| $ | 32,535 |
Reclassification of loans held-for-investment portfolio to held-for-sale portfolio | $ | 33,647 |
| $ | 123,137 |
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio | $ | 112 |
| $ | 182 |
|
|
|
|
|
|
See notes to unaudited consolidated financial statements |
109
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION
OFG Bancorp (“Oriental”) is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. Oriental operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer, Oriental Financial Services Corp. (“Oriental Financial Services”), an insurance agency, Oriental Insurance LLC. (“Oriental Insurance”) and, a retirement plan administrator, Oriental Pension Consultants, Inc. (“OPC”), and two operating subsidiaries of the Bank, OFG USA LLC ("OFG USA") and Oriental International Bank Inc. (“OIB”). Through these subsidiaries and their respective divisions, Oriental provides a wide range of banking and financial services such as commercial, consumer and mortgage lending, auto loans, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.
On April 30, 2010, the Bank acquired certain assets and assumed certain deposits and other liabilities of Eurobank, a Puerto Rico commercial bank, in an FDIC-assisted acquisition. On February 6, 2017, the Bank and the FDIC agreed to terminate the shared-loss agreements related to the Eurobank Acquisition. On December 18, 2012, Oriental acquired a group of Puerto Rico-based entities that included Banco Bilbao Vizcaya Argentaria Puerto Rico (“BBVAPR”), a Puerto Rico commercial bank, as well as a securities broker-dealer and an insurance agency, which is referred to herein as the “BBVAPR Acquisition.” TheThese acquired businesses acquired in these acquisitions have been integrated with Oriental’s existing business.
RecentNew Accounting DevelopmentsUpdates 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. We will assess the impact that the adoption of ASU 2018-15 will have on our consolidated financial statements and related disclosures during the year 2019.
Scope of Modification Accounting.Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. In May 2017,August 2018, the FASB issued ASU 2018-13, which improves the effectiveness of fair value measurement disclosures. ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Accounting Standards Board (“FASB”) issuedReporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. This ASU is the final version of Proposed Accounting Standards Update (“ASU”) No. 2017-092015-350—Fair Value Measurement (Topic 820)—Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurements, which has been deleted. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2019. We will assess the impact that clarifies whenthe adoption of ASU 2018-13 will have on our consolidated financial statements and related disclosures during the year 2019.
Codification Improvements. In July 2018, the FASB issued ASU 2018-9, which represents changes to clarify the termsFASB Accounting Standards Codification (the “Codification”), correct unintended application of guidance, or conditions ofmake minor improvements to the Codification that are not expected to have a share-based payment award must be accounted for as modifications. Entities will apply the modificationsignificant effect on current accounting guidance if the value, vesting conditionspractice or classificationcreate a significant administrative cost to most entities. Some of the award changes.amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies, providing needed clarifications, and improving the presentation of guidance in the Codification. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this ASU No. 2017-08 isdo not require transition guidance and will be effective upon issuance of this ASU. However, many of the amendments in this ASU do have transition guidance with effective dates for fiscal years, and interimannual periods beginning after December 15, 2018, with early adoption permitted. Oriental's Omnibus Plan provides for equity-based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, and dividend equivalents, as well as equity-based performance awards. If any change occurs in the future to the Omnibus Plan, Oriental will evaluate it under this guideline.public business entities.
10
Premium Amortization on Purchased Callable Debt Securities Receivables. In March 2017, the FASB issued ASU No. 2017-08, which requires the amortization of the premium on callable debt securities to the earliest call date. The amortization period for callable debt securities purchased at a discount would not be impacted by the ASU. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2018. The ASU is not expected to have a material impact on Oriental's consolidated financial position or results of operations. At September 30, 2017,2018, Oriental does not have callable debt securities.
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task Force). In February 2017, the FASB issued ASU No. 2017-06, which intended to reduce diversity and improve the usefulness of information provided by employee benefit plans that hold interests in master trusts. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2018. The ASU is not expected to have a material impact on Oriental's consolidated financial position or results of operations.
Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, which simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2019. We will assess the impact that the adoption of ASU 2017-04 will have on our consolidated financial statements and related disclosures before implementation.during the year 2019.
11Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU No. 2016-13 is effective for fiscal years, and interim periods, beginning after December 15, 2019. Oriental will implement ASU No. 2016-13 on January 1, 2020. While we continue to assess the impact of ASU No. 2016-13, we have developed a roadmap with time schedules in place from 2016 to implementation date. Oriental's cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We recently have 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. Although Oriental expects the allowance for credit losses to increase upon adoption with a corresponding adjustment to retained earnings, the ultimate amount of the increase will depend on the portfolio composition, credit quality, economic conditions and reasonable and supportable forecasts at that time.
Leases. In February 2016, the FASB issued ASU No. 2016-02, the FASB issued ASU No. 2016-02, which requires lessees to recognize a right-of-use (ROU) asset and related lease liability for leases classified as operating leases at the commencement date that have lease terms of more than 12 months. The standard, effective January 1, 2019, with early adoption permitted, would have caused us to recognize virtually all leases on the Consolidated Balance Sheets upon adoption and in the comparative period. However, in July 2018, the FASB issued an update to its guidance providing companies with the option to adopt the provisions of the standard prospectively without adjusting comparative periods; we will elect this option and adopt the standard on January 1, 2019. The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. Oriental’s leases primarily consist of leased office space. At September 30, 2018, Oriental had $27.7 million of minimum lease commitments from these operating leases (refer to Note 20). While we continue to assess the potential impacts upon adoption, we do not expect a material impact on our financial position, results of operations, cash flows or regulatory risk-based capital. Preliminarily we expect that the amounts to be recognized as right-of-use assets and lease liabilities will be less than 1% of our total assets.
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)New Accounting Updates Adopted During the Nine-month Period Ended September 30, 2018
Restricted Cash. In November 2016, the FASB issued ASU No. 2016-18, which amends Topic 230 (Statement of Cash Flows) and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU No. 2016-18 is intended to reduce diversity in practice in how restricted cash or restricted cash equivalents are presented and classified in the statement of cash flows. ASU No. 2016-18 is
11
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
effective for fiscal years, and interim periods, beginning after December 15, 2017, with early adoption permitted.2017. The standard requires application using a retrospective transition method. The adoption of ASU No. 2016-18 will changeon January 1, 2018, changed the presentation and classification of restricted cash and restricted cash equivalents in our consolidated statements of cash flows.
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU No. 2016-13 is effective for fiscal years, and interim periods, beginning after December 15, 2019. While we continue to assess the impact of ASU No. 2016-13, we have developed a roadmap with time schedules in place from 2016 to implementation date. Oriental is in the process of assessing the methodology and the software to be used.
Leases. In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize a right-of-use asset and related lease liability for leases classified as operating leases at the commencement date that have lease terms of more than 12 months. This ASU retains the classification distinction between finance leases and operating leases. ASU No. 2016-02 is effective for fiscal years, and interim periods, beginning after December 15, 2018. We are currently assessing the impact the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures.
Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, which supersedes the revenue recognition requirements Topic 605 (Revenue Recognition), and most industry-specific guidance. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 by one year to fiscal years beginning after December 15, 2017. Oriental has adopted this ASU No. 2015-14 also permits early adoptionon January 1, 2018 using the modified retrospective method. Oriental’s implementation efforts included the identification of ASU No. 2014-09, but not before the original effective date, which was for fiscal years beginning after December 15, 2016. While the new guidance does not apply to revenue associated with loans or securities, Oriental identified the customer contractsstreams that are within the scope of the new guidance assessedand the review of related revenues,contracts with customers to determine their effect on certain non-interest income items presented in our consolidated statements of operations and has determinedthe additional presentation disclosures required (refer to note 22). We concluded that it will not materially impact its consolidated financial position or results of operations. There will not be any accounting or significant internal control changes as a result of the new provisions. The timingsubstantially all of Oriental’s revenue recognition isrevenues are generated from activities that are outside the scope of this ASU, and the adoption did not expected to materially change.
Other than the accounting pronouncements disclosed above, there are no other new accounting pronouncements issued during the first quarter of 2017 that could have a material impact on Oriental'sour consolidated financial position, operating results or financial statements disclosures.statements. Therefore, there was no cumulative effect adjustment recorded.
12
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Hurricanes Irma and Maria
During the third quarter of 2017, Oriental was impacted by Hurricaneshurricanes Irma and Maria, which struck the islandIsland on September 7, 2017 and September 20, 2017, respectively. Hurricane Maria caused catastrophic damages throughout Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and public facilities. It caused an unprecedented crisis when it ravaged the Island’s electric power grid less than two weeks after hurricane Irma left over a million Puerto Rico residents without power. Over a monthFor several months after the hurricanes, mosta large part of Puerto Rico remainswas without electricity, many businesses arewere unable to operate, and government authorities are still strugglingstruggled to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays.Maria.
Almost all of Oriental’s operations and clients are located in Puerto Rico. Although Oriental’s business operations were disrupted by major damages to Puerto Rico’s critical infrastructure, including its electric power grid and telecommunications network, Oriental’s digital channels, core banking and electronic funds transfer systems continued to function uninterrupted during and after the hurricanes. Within days after hurricane Maria, and upon securing a continuing supply of diesel fuel for its electric power generators, Oriental was able to open its main offices and many of its branches and ATMs in addition to its digital and phone trade channels.
As a result of this event, and based on current assessments of information available for the impact of the hurricanes on our credit portfolio, 2017 third and fourth quarter 2017 results included an additional $27.0 million in loan loss provision pre-tax. Referof $27.0 million and $5.4 million, respectively.
Oriental implemented its disaster response plan as these storms approached its service areas. To operate in disaster response mode, Oriental incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security measures, property damages, and emergency communication with customers regarding the status of its banking operations. The estimated total non-credit operating costs as of December 31, 2017 amounted to footnotes$6.6 million. No additional losses have been incurred at September 30, 2018.
Oriental maintains insurance for further disclosure associated to this significant eventcasualty losses as well as for disaster response costs and certain revenue lost through business interruption. Management believes that recovery of $2.2 million incurred costs as of December 31, 2017 is probable. Oriental received a $1.0 million partial payment from the insurance company during the quarter ended December 2017. and a $0.7 million payment during the nine-month period ended September 30, 2018. Accordingly, a receivable of $0.5 million and $1.2 million was included in other assets at September 30, 2018 and December 31, 2017, respectively, for the expected recovery.
12
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table includes the composition of Oriental’s restricted cash:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Cash pledged as collateral to other financial institutions to secure: |
|
|
|
|
|
|
|
|
|
|
Derivatives | $ | 1,980 |
| $ | 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 | $ | 3,030 |
| $ | 3,030 |
At both September 30, 2018 and December 31, 2017, the Bank’s international banking entities, Oriental International Bank Inc. (“OIB”)OIB and Oriental Overseas, a division of the Bank, held an unencumbered certificate of deposit and other short-term highly liquid securities in the amount of $$300 thousand and $and $325325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. At December 31, 2016, These instruments they held an unencumbered certificate of deposit and other short-term highly liquid securities in the amount of $300 thousand as the required legal reserve. The certificate of deposit and other securities cannot be withdrawn or soldtransferred by OIB or Oriental Overseas without prior written approval of the Office of the Commissioner of Financial Institutions ("OCFI"of Puerto Rico (the "OCFI").
As part of its derivative activities, Oriental has entered into collateral agreements with certain financial counterparties. At both September 30, 20172018 and December 31, 2016,2017, Oriental had delivered approximately $2.0 million of cash as collateral for such derivatives activities.
As part of the BBVA Acquisition, Oriental assumedhas a contract with FNMA which requiredrequires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both September 30, 20172018 and December 31, 2016,2017, Oriental delivered as collateral cash amounting to approximately $1.1 million.
The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits. The amount of those minimum average reserve balances for the week that covered September 30, 20172018 was $167.3 $212.7million (December 31, 20162017 - $161.0$189.2
13
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
million). At September 30, 20172018 and December 31, 2016,2017, the Bank complied with thethis requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.
1413
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 4 – INVESTMENT SECURITIES
Money Market Investments
Oriental considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At September 30, 20172018 and December 31, 2016,2017, money market instruments included as part of cash and cash equivalents amounted to $6.5$5.8 million and $5.6$7.0 million, respectively.
Investment Securities
The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by Oriental at September 30, 20172018 and December 31, 20162017 were as follows:
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||||||||
|
|
| Gross |
| Gross |
|
|
| Weighted |
|
| Gross |
| Gross |
|
|
| Weighted | ||||||||
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Average | Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Average | ||||||||
| Cost |
| Gains |
| Losses |
| Value |
| Yield | Cost |
| Gains |
| Losses |
| Value |
| Yield | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FNMA and FHLMC certificates | $ | 344,581 |
| $ | 2,464 |
| $ | 1,462 |
| $ | 345,583 |
| 2.36% | $ | 586,097 |
| $ | 20 |
| $ | 15,799 |
| $ | 570,318 |
| 2.59% |
GNMA certificates |
| 162,993 |
| 2,197 |
| 423 |
| 164,767 |
| 2.94% |
| 202,585 |
| 300 |
| 5,431 |
| 197,454 |
| 3.06% | ||||||
CMOs issued by US government-sponsored agencies |
| 86,905 |
|
| 6 |
|
| 1,038 |
|
| 85,873 |
| 1.90% |
| 69,960 |
|
| - |
|
| 3,194 |
|
| 66,766 |
| 1.90% |
Total mortgage-backed securities |
| 594,479 |
|
| 4,667 |
|
| 2,923 |
|
| 596,223 |
| 2.45% |
| 858,642 |
|
| 320 |
|
| 24,424 |
|
| 834,538 |
| 2.64% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities |
| 10,269 |
| - |
| 51 |
| 10,218 |
| 1.26% |
| 10,617 |
| - |
| 157 |
| 10,460 |
| 1.32% | ||||||
Obligations of US government-sponsored agencies |
| 3,121 |
| - |
| 29 |
| 3,092 |
| 1.38% |
| 2,484 |
| - |
| 89 |
| 2,395 |
| 1.38% | ||||||
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
| - |
| 249 |
| 2,206 |
| 5.55% | ||||||||||||||||
Other debt securities |
| 1,612 |
|
| 72 |
|
| - |
|
| 1,684 |
| 3.00% |
| 1,152 |
|
| 7 |
|
| - |
|
| 1,159 |
| 2.99% |
Total investment securities |
| 17,457 |
|
| 72 |
|
| 329 |
|
| 17,200 |
| 2.42% |
| 14,253 |
|
| 7 |
|
| 246 |
|
| 14,014 |
| 1.46% |
Total securities available for sale | $ | 611,936 |
| $ | 4,739 |
| $ | 3,252 |
| $ | 613,423 |
| 2.44% | $ | 872,895 |
| $ | 327 |
| $ | 24,670 |
| $ | 848,552 |
| 2.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FNMA and FHLMC certificates | $ | 530,178 |
| $ | 367 |
| $ | 4,715 |
| $ | 525,830 |
| 2.09% | $ | 444,679 |
| $ | - |
| $ | 19,613 |
| $ | 425,066 |
| 2.07% |
1514
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||||||||
|
|
| Gross |
| Gross |
|
|
| Weighted |
|
| Gross |
| Gross |
|
|
| Weighted | ||||||||
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Average | Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Average | ||||||||
| Cost |
| Gains |
| Losses |
| Value |
| Yield | Cost |
| Gains |
| Losses |
| Value |
| Yield | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FNMA and FHLMC certificates | $ | 422,168 |
| $ | 6,354 |
| $ | 3,036 |
| $ | 425,486 |
| 2.59% | $ | 383,194 |
| $ | 1,402 |
| $ | 2,881 |
| $ | 381,715 |
| 2.39% |
GNMA certificates |
| 163,614 |
| 2,241 |
| 620 |
| 165,235 |
| 2.95% |
| 166,436 |
| 1,486 |
| 584 |
| 167,338 |
| 2.94% | ||||||
CMOs issued by US government-sponsored agencies |
| 103,990 |
|
| 64 |
|
| 2,223 |
|
| 101,831 |
| 1.88% |
| 82,026 |
|
| - |
|
| 1,955 |
|
| 80,071 |
| 1.90% |
Total mortgage-backed securities |
| 689,772 |
|
| 8,659 |
|
| 5,879 |
|
| 692,552 |
| 2.57% |
| 631,656 |
|
| 2,888 |
|
| 5,420 |
|
| 629,124 |
| 2.47% |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities |
| 49,672 |
| - |
| 618 |
| 49,054 |
| 1.73% |
| 10,276 |
| - |
| 113 |
| 10,163 |
| 1.25% | ||||||
Obligations of US government-sponsored agencies |
| 3,903 |
| - |
| 19 |
| 3,884 |
| 1.38% |
| 2,927 |
| - |
| 48 |
| 2,879 |
| 1.38% | ||||||
Obligations of Puerto Rico government and public instrumentalities |
| 4,680 |
| - |
| 607 |
| 4,073 |
| 5.55% |
| 2,455 |
| - |
| 362 |
| 2,093 |
| 5.55% | ||||||
Other debt securities |
| 1,840 |
|
| 81 |
|
| - |
|
| 1,921 |
| 3.00% |
| 1,486 |
|
| 52 |
|
| - |
|
| 1,538 |
| 2.97% |
Total investment securities |
| 60,095 |
|
| 81 |
|
| 1,244 |
|
| 58,932 |
| 2.04% |
| 17,144 |
|
| 52 |
|
| 523 |
|
| 16,673 |
| 2.04% |
Total securities available-for-sale | $ | 749,867 |
| $ | 8,740 |
| $ | 7,123 |
| $ | 751,484 |
| 2.53% | $ | 648,800 |
| $ | 2,940 |
| $ | 5,943 |
| $ | 645,797 |
| 2.46% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FNMA and FHLMC certificates | $ | 599,884 |
| $ | 145 |
| $ | 7,266 |
| $ | 592,763 |
| 2.15% | $ | 506,064 |
| $ | - |
| $ | 8,383 |
| $ | 497,681 |
| 2.07% |
The amortized cost and fair value of Oriental’s investment securities at September 30, 2017,2018, 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.
1615
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||||
| Available-for-sale |
| Held-to-maturity | Available-for-sale |
| Held-to-maturity | ||||||||||||||||
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from 1 to 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 7,160 |
| $ | 7,246 |
| $ | - |
| $ | - | $ | 4,241 |
| $ | 4,142 |
| $ | - |
| $ | - |
Total due from 1 to 5 years |
| 7,160 |
|
| 7,246 |
|
| - |
|
| - |
| 4,241 |
|
| 4,142 |
|
| - |
|
| - |
Due after 5 to 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 76,877 |
| $ | 75,884 |
| $ | - |
| $ | - | $ | 61,590 |
| $ | 58,617 |
| $ | - |
| $ | - |
FNMA and FHLMC certificates |
| 132,716 |
|
| 132,163 |
|
| - |
|
| - |
| 235,031 |
|
| 228,438 |
|
| - |
|
| - |
Total due after 5 to 10 years |
| 209,593 |
|
| 208,047 |
|
| - |
|
| - |
| 296,621 |
|
| 287,055 |
|
| - |
|
| - |
Due after 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 204,705 |
| $ | 206,174 |
| $ | 530,178 |
| $ | 525,830 | $ | 346,825 |
| $ | 337,738 |
| $ | 444,679 |
| $ | 425,066 |
GNMA certificates |
| 162,993 |
| 164,767 |
| - |
| - |
| 202,585 |
| 197,454 |
| - |
| - | ||||||
CMOs issued by US government-sponsored agencies |
| 10,028 |
|
| 9,989 |
|
| - |
|
| - |
| 8,370 |
|
| 8,149 |
|
| - |
|
| - |
Total due after 10 years |
| 377,726 |
|
| 380,930 |
|
| 530,178 |
|
| 525,830 |
| 557,780 |
|
| 543,341 |
|
| 444,679 |
|
| 425,066 |
Total mortgage-backed securities |
| 594,479 |
|
| 596,223 |
|
| 530,178 |
|
| 525,830 |
| 858,642 |
|
| 834,538 |
|
| 444,679 |
|
| 425,066 |
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due less than one year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | 324 |
| $ | 323 |
| $ | - |
| $ | - | $ | 646 |
| $ | 645 |
| $ | - |
| $ | - |
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
|
| 2,206 |
|
| - |
| - | ||||||||||||
Total due in less than one year |
| 2,779 |
|
| 2,529 |
|
| - |
|
| - |
| 646 |
|
| 645 |
|
| - |
|
| - |
Due from 1 to 5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities | $ | 9,945 |
| $ | 9,895 |
| $ | - |
| $ | - | $ | 9,971 |
| $ | 9,815 |
| $ | - |
| $ | - |
Obligations of US government and sponsored agencies |
| 3,121 |
|
| 3,092 |
|
| - |
|
| - |
| 2,484 |
|
| 2,395 |
|
| - |
|
| - |
Total due from 1 to 5 years |
| 13,066 |
|
| 12,987 |
|
| - |
|
| - |
| 12,455 |
|
| 12,210 |
|
| - |
|
| - |
Due from 5 to 10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other debt securities |
| 1,612 |
|
| 1,684 |
|
| - |
|
| - |
| 1,152 |
|
| 1,159 |
|
| - |
|
| - |
Total due after 5 to 10 years |
| 1,612 |
|
| 1,684 |
|
| - |
|
| - |
| 1,152 |
|
| 1,159 |
|
| - |
|
| - |
Total investment securities |
| 17,457 |
|
| 17,200 |
|
| - |
|
| - |
| 14,253 |
|
| 14,014 |
|
| - |
|
| - |
Total | $ | 611,936 |
| $ | 613,423 |
| $ | 530,178 |
| $ | 525,830 | $ | 872,895 |
| $ | 848,552 |
| $ | 444,679 |
| $ | 425,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1716
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During the nine-monthnine 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. These sales did not realize any gains or losses during such period. During the nine-month period ended September 30, 2017Oriental retained securitized GNMA pools totaling $69.3 million amortized cost, at a yield of 3.14% from its own originations while during the nine-month period ended September 30, 2016 that amount totaled $71.8 million, amortized cost, at a yield of 2.99%.
During the nine-month period ended September 30, 2017, Oriental sold $166.0 million of mortgage-backed securities and $84.1 million of US Treasury securities, and recorded a net gain on sale of securities of $6.9 million. During the nine-month period ended September 30, 2016, Oriental sold $277.2 million on mortgage-backed securities and $11.1 million of Puerto Rico government bonds, and recorded a net gain on sale of securities of $12.2 million.
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2018 | ||||||||||||||||||||
|
|
| Book Value |
|
|
|
|
|
| Book Value |
|
|
|
| ||||||||
Description | Sale Price |
| at Sale |
| Gross Gains |
| Gross Losses | Sale Price |
| at Sale |
| Gross Gains |
| Gross Losses | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Sale of securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 107,510 |
| $ | 102,311 |
| $ | 5,199 |
| $ | - | |||||||||||
GNMA certificates |
| 65,284 |
| 63,704 |
| 1,580 |
| - | $ | 14,746 |
| $ | 14,746 |
| $ | - |
| $ | - | |||
Investment securities |
|
|
|
|
|
|
|
| ||||||||||||||
US Treasury securities |
| 84,202 |
|
| 84,085 |
|
| 117 |
|
| - | |||||||||||
Total | $ | 256,996 |
| $ | 250,100 |
| $ | 6,896 |
| $ | - | $ | 14,746 |
| $ | 14,746 |
| $ | - |
| $ | - |
| Nine-Month Period Ended September 30, 2016 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||
|
|
| Book Value |
|
|
|
|
|
| Book Value |
|
|
|
| ||||||||
Description | Sale Price |
| at Sale |
| Gross Gains |
| Gross Losses | Sale Price |
| at Sale |
| Gross Gains |
| Gross Losses | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Sale of securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 293,505 |
| $ | 277,181 |
| $ | 16,324 |
| $ | - | $ | 107,510 |
| $ | 102,311 |
| $ | 5,199 |
| $ | - |
GNMA certificates |
| 65,284 |
| 63,704 |
| 1,580 |
| - | ||||||||||||||
Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of PR government and public instrumentalities |
| 6,978 |
|
| 11,095 |
|
| - |
|
| 4,117 | |||||||||||
US Treasury securities |
| 84,202 |
|
| 84,085 |
|
| 117 |
|
| - | |||||||||||
Total mortgage-backed securities | $ | 300,483 |
| $ | 288,276 |
| $ | 16,324 |
| $ | 4,117 | $ | 256,996 |
| $ | 250,100 |
| $ | 6,896 |
| $ | - |
17
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables show Oriental’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position at September 30, 20172018 and December 31, 2016:2017:
| September 30, 2018 | |||||||
| 12 months or more | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US Government-sponsored agencies | $ | 68,960 |
| $ | 3,174 |
| $ | 65,786 |
FNMA and FHLMC certificates |
| 160,420 |
|
| 7,451 |
|
| 152,969 |
Obligations of US Government and sponsored agencies |
| 2,484 |
|
| 89 |
|
| 2,395 |
GNMA certificates |
| 28,296 |
|
| 1,606 |
|
| 26,690 |
US Treasury Securities |
| 9,971 |
|
| 157 |
|
| 9,814 |
| $ | 270,131 |
| $ | 12,477 |
| $ | 257,654 |
Securities held to maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 381,941 |
| $ | 17,619 |
| $ | 364,322 |
|
|
|
|
|
|
|
|
|
| Less than 12 months | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 1,000 |
| $ | 20 |
| $ | 980 |
FNMA and FHLMC certificates |
| 425,094 |
|
| 8,348 |
|
| 416,746 |
GNMA certificates |
| 145,438 |
|
| 3,825 |
|
| 141,613 |
US Treasury Securities |
| 646 |
|
| - |
|
| 646 |
| $ | 572,178 |
| $ | 12,193 |
| $ | 559,985 |
Securities held-to-maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC Certificates | $ | 62,738 |
| $ | 1,994 |
| $ | 60,744 |
|
|
|
|
|
|
|
|
|
| Total | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 69,960 |
| $ | 3,194 |
| $ | 66,766 |
FNMA and FHLMC certificates |
| 585,514 |
|
| 15,799 |
|
| 569,715 |
Obligations of US government and sponsored agencies |
| 2,484 |
|
| 89 |
|
| 2,395 |
GNMA certificates |
| 173,734 |
|
| 5,431 |
|
| 168,303 |
US Treausury Securities |
| 10,617 |
|
| 157 |
|
| 10,460 |
| $ | 842,309 |
| $ | 24,670 |
| $ | 817,639 |
Securities held-to-maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 444,679 |
| $ | 19,613 |
| $ | 425,066 |
18
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | |||||||
| 12 months or more | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 58,328 |
| $ | 869 |
| $ | 57,459 |
FNMA and FHLMC certificates |
| 8,196 |
|
| 175 |
|
| 8,021 |
Obligations of US government and sponsored agencies |
| 3,121 |
|
| 29 |
|
| 3,092 |
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
|
| 249 |
|
| 2,206 |
| $ | 72,100 |
| $ | 1,322 |
| $ | 70,778 |
Securities held to maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 44,759 |
| $ | 884 |
| $ | 43,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than 12 months | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 27,413 |
| $ | 169 |
| $ | 27,244 |
FNMA and FHLMC certificates |
| 146,578 |
|
| 1,287 |
|
| 145,291 |
GNMA certificates |
| 29,243 |
|
| 423 |
|
| 28,820 |
US Treasury Securities |
| 10,269 |
|
| 51 |
|
| 10,218 |
| $ | 213,503 |
| $ | 1,930 |
| $ | 211,573 |
Securities held-to-maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC Certificates | $ | 386,995 |
| $ | 3,831 |
| $ | 383,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total | |||||||
| Amortized |
| Unrealized |
| Fair | |||
| Cost |
| Loss |
| Value | |||
| (In thousands) | |||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
CMOs issued by US government-sponsored agencies | $ | 85,741 |
| $ | 1,038 |
| $ | 84,703 |
FNMA and FHLMC certificates |
| 154,774 |
|
| 1,462 |
|
| 153,312 |
Obligations of Puerto Rico government and public instrumentalities |
| 2,455 |
|
| 249 |
|
| 2,206 |
Obligations of US government and sponsored agencies |
| 3,121 |
|
| 29 |
|
| 3,092 |
GNMA certificates |
| 29,243 |
|
| 423 |
|
| 28,820 |
US Treasury Securities |
| 10,269 |
|
| 51 |
|
| 10,218 |
| $ | 285,603 |
| $ | 3,252 |
| $ | 282,351 |
Securities held-to-maturity |
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 431,754 |
| $ | 4,715 |
| $ | 427,039 |
19
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | December 31, 2017 | ||||||||||||||
| 12 months or more | 12 months or more | ||||||||||||||
| Amortized |
| Unrealized |
| Fair | Amortized |
| Unrealized |
| Fair | ||||||
| Cost |
| Loss |
| Value | Cost |
| Loss |
| Value | ||||||
| (In thousands) | (In thousands) | ||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CMOs issued by US Government-sponsored agencies | $ | 72,562 |
| $ | 1,857 |
| $ | 70,705 | ||||||||
FNMA and FHLMC certificates |
| 111,635 |
| 2,122 |
| 109,513 | ||||||||||
Obligations of US Government and sponsored agencies |
| 2,927 |
| 48 |
| 2,879 | ||||||||||
Obligations of Puerto Rico government and public instrumentalities | $ | 4,680 |
| $ | 607 |
| $ | 4,073 |
| 2,455 |
| 362 |
| 2,093 | ||
CMOs issued by US government-sponsored agencies |
| 33,883 |
|
| 793 |
|
| 33,090 | ||||||||
GNMA certificates |
| 20,803 |
| 499 |
| 20,304 | ||||||||||
US Treasury Securities |
| 9,952 |
|
| 113 |
|
| 9,839 | ||||||||
| $ | 38,563 |
| $ | 1,400 |
| $ | 37,163 | $ | 220,334 |
| $ | 5,001 |
| $ | 215,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale |
|
|
|
|
|
| ||||||||||
FNMA and FHLMC certificates | $ | 352,399 |
|
| 7,264 |
|
| 345,135 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Less than 12 months | Less than 12 months | ||||||||||||||
| Amortized |
| Unrealized |
| Fair | Amortized |
| Unrealized |
| Fair | ||||||
| Cost |
| Loss |
| Value | Cost |
| Loss |
| Value | ||||||
| (In thousands) | (In thousands) | ||||||||||||||
Securities available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
| ||||
CMOs issued by US government-sponsored agencies |
| 67,777 |
| 1,430 |
| 66,347 | ||||||||||
CMOs issued by US Government-sponsored agencies |
| 9,464 |
| 98 |
| 9,366 | ||||||||||
FNMA and FHLMC certificates |
| 184,782 |
| 3,036 |
| 181,746 |
| 125,107 |
| 759 |
| 124,348 | ||||
Obligations of US government and sponsored agencies |
| 3,903 |
| 19 |
| 3,884 | ||||||||||
GNMA certificates |
| 29,445 |
| 620 |
| 28,825 |
| 14,001 |
| 85 |
| 13,916 | ||||
US Treasury Securities |
| 49,172 |
|
| 618 |
|
| 48,554 |
| 324 |
|
| - |
|
| 324 |
| $ | 335,079 |
| $ | 5,723 |
| $ | 329,356 | $ | 148,896 |
| $ | 942 |
| $ | 147,954 |
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 525,258 |
| $ | 7,266 |
| $ | 517,992 | $ | 153,665 |
| $ | 1,119 |
| $ | 152,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| 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 |
| 101,660 |
| 2,223 |
| 99,437 | ||||||||||
CMOs issued by US Government-sponsored agencies |
| 82,026 |
| 1,955 |
| 80,071 | ||||||||||
FNMA and FHLMC certificates |
| 184,782 |
| 3,036 |
| 181,746 |
| 236,742 |
| 2,881 |
| 233,861 | ||||
Obligations of Puerto Rico government and public instrumentalities |
| 4,680 |
| 607 |
| 4,073 |
| 2,455 |
| 362 |
| 2,093 | ||||
Obligations of US government and sponsored agencies |
| 3,903 |
| 19 |
| 3,884 |
| 2,927 |
| 48 |
| 2,879 | ||||
GNMA certificates |
| 29,445 |
| 620 |
| 28,825 |
| 34,804 |
| 584 |
| 34,220 | ||||
US Treasury Securities |
| 49,172 |
|
| 618 |
|
| 48,554 | ||||||||
US Treausury Securities |
| 10,276 |
|
| 113 |
|
| 10,163 | ||||||||
| $ | 373,642 |
| $ | 7,123 |
| $ | 366,519 | $ | 369,230 |
| $ | 5,943 |
| $ | 363,287 |
Securities held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates | $ | 525,258 |
| $ | 7,266 |
| $ | 517,992 | $ | 506,064 |
| $ | 8,383 |
| $ | 497,681 |
2019
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Oriental performs valuations of the investment securities on a monthly basis. Moreover, Oriental conducts quarterly reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairment. Any portion of a decline in value associated with credit loss is recognized in the statements of operations with the remaining noncredit-related component recognized in other comprehensive income (loss). A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.” Other-than-temporary impairment analysis is based on estimates that depend on market conditions and are subject to further change over time. In addition, while Oriental believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement,improvement, including those made as a result of market developments. Consequently, it is reasonably possible that changes in estimates or conditions could result in the need to recognize additional other-than-temporary impairment charges in the future.
AllMost of the investments ($714.91.2 million,billion, amortized cost, or 99.7%)cost) with an unrealized loss position at September 30, 20172018 consist of securities issued or guaranteed by the U.S. Treasury or U.S. government-sponsored agencies, all of which are highly liquid securities that have a large and efficient secondary market. Their aggregate losses and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthiness of the issuers or guarantors of such securities.
The sole exposure to PR bond ($2.5 million, amortized cost, or 0.3%) with an unrealized loss position at September 30, 2017 consists of an obligation issued by the Puerto Rico Highways and Transportation Authority ("PRHTA") secured by a pledge of toll revenues from the Teodoro Moscoso Bridge operated through a public-private partnership. The decline in the market value of this security is mainly attributed to the significant economic and fiscal challenges that Puerto Rico is facing, which is expected to result in a significant restructuring of the government under the supervision of a federally created Fiscal Oversight Board. All other Puerto Rico government securities were sold during the first quarter of 2016. The PRHTA bond had an aggregate fair value of $2.2 million at September 30, 2017 (90% of the bond's amortized cost) and matures on July 1, 2018. The discounted cash flow analysis for the investment showed a cumulative default probability at maturity of 6.6%, thus reflecting that it is more likely than not that the bond will not default during its remaining term. Based on this analysis, Oriental determined that it is more likely than not that it will recover all interest and principal invested in this Puerto Rico government bond and is, therefore, not required to recognize a credit loss as of September 30, 2017. Also, Oriental’s conclusion is based on the assessment of the specific source of repayment of the outstanding bond, which continues to perform. PRHTA started principal repayments on July 1, 2014. All scheduled principal and interest payments to date have been collected. As a result of the aforementioned analysis, no other-than-temporary losses were recorded during the period ended September 30, 2017.
As of September 30, 2017, Oriental performed a cash flow analysis of its Puerto Rico government bond to calculate the cash flows expected to be collected and determine if any portion of the decline in market value of this investment was considered an other-than-temporary impairment. The analysis derives an estimate of value based on the present value of risk-adjusted future cash flows of the underlying investment, and included the following components:
·The contractual future cash flows of the bond are projected based on the key terms as set forth in the official statements for the investment. Such key terms include among others the interest rate, amortization schedule, if any, and maturity date.
·The risk-adjusted cash flows are calculated based on a monthly default probability and recovery rate assumptions based on the credit rating of the investment. Constant monthly default rates are assumed throughout the life of the bond which is based on the respective security’s credit rating as of the date of the analysis.
·The adjusted future cash flows are then discounted at the original effective yield of the investment based on the purchase price and expected risk-adjusted future cash flows as of the purchase date of the investment.
The following table presents a rollforward of credit-related impairment losses recognized in earnings for the nine-month periods ended September 30, 2017 and 2016 on available-for-sale securities:
|
| Nine-Month Period Ended September 30, | ||||
|
| 2017 |
| 2016 | ||
| (In thousands) | |||||
Balance at beginning of period |
| $ | - |
| $ | 1,490 |
Reductions for securities sold during the period (realized) |
|
| - |
|
| (1,490) |
Balance at end of period |
| $ | - |
| $ | - |
21
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, 2017.
As a result of the devastation caused by hurricanes Irma and Maria, Oriental offered an automatic three-month forbearance for the payment due on auto and personal loans for customers whose payments were not over 89 days past due at August 31, 2017. These payments, together with any additional accrued interest, will be paid in three installments after the original maturity of the loans. Residential mortgage loans will have the same forbearance, but the payments subject to the forbearance on non-conforming loans will be payable in aggregate as a balloon payment at the maturity of the loan and on conforming mortgage loans the repayment terms will be established on a case by case basis at the end of the forbearance period. For credit cards, that were not over 29 days past due at August 31, 2017, the minimum payment amount will be skipped until December 31, 2017. Oriental also offered an automatic one-month forbearance for the payment of principal and interest for commercial loans, for customers whose payments were not over 30 days past due at August 31, 2017, and the flexibility of extending it up to two additional months, based on the customer's needs. Oriental had approximately 100 thousand loans under the automatic three-month forbearance program with a UPB of $3.7 billion at September 30, 2017.
The composition of Oriental’s loan portfolio at September 30, 20172018 and December 31, 20162017 was as follows:
2220
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 694,476 |
| $ | 721,494 | $ | 667,224 |
| $ | 683,607 |
Commercial |
| 1,245,711 |
|
| 1,277,866 |
| 1,540,027 |
|
| 1,307,261 |
Consumer |
| 316,357 |
|
| 290,515 |
| 345,399 |
|
| 330,039 |
Auto and leasing |
| 831,437 |
|
| 756,395 |
| 1,084,912 |
|
| 883,985 |
|
| 3,087,981 |
|
| 3,046,270 |
| 3,637,562 |
|
| 3,204,892 |
Allowance for loan and lease losses on originated and other loans and leases |
| (87,541) |
|
| (59,300) |
| (95,236) |
|
| (92,718) |
|
| 3,000,440 |
|
| 2,986,970 |
| 3,542,326 |
|
| 3,112,174 |
Deferred loan costs, net |
| 6,592 |
|
| 5,766 |
| 7,556 |
|
| 6,695 |
Total originated and other loans loans held for investment, net |
| 3,007,032 |
|
| 2,992,736 | |||||
Total originated and other loans held for investment, net |
| 3,549,882 |
|
| 3,118,869 | |||||
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
|
|
|
Commercial |
| 4,612 |
|
| 5,562 |
| 2,778 |
|
| 4,380 |
Consumer |
| 29,464 |
|
| 32,862 |
| 24,914 |
|
| 28,915 |
Auto |
| 26,562 |
|
| 53,026 |
| 7,494 |
|
| 21,969 |
|
| 60,638 |
|
| 91,450 |
| 35,186 |
|
| 55,264 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (3,363) |
|
| (4,300) |
| (2,350) |
|
| (3,862) |
|
| 57,275 |
|
| 87,150 |
| 32,836 |
|
| 51,402 |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 532,948 |
|
| 569,253 |
| 503,861 |
|
| 532,053 |
Commercial |
| 244,359 |
|
| 292,564 |
| 190,178 |
|
| 243,092 |
Consumer |
| 1,598 |
|
| 4,301 |
| 95 |
|
| 1,431 |
Auto |
| 49,258 |
|
| 85,676 |
| 20,363 |
|
| 43,696 |
|
| 828,163 |
|
| 951,794 |
| 714,497 |
|
| 820,272 |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (40,110) |
|
| (31,056) |
| (43,875) |
|
| (45,755) |
|
| 788,053 |
|
| 920,738 |
| 670,622 |
|
| 774,517 |
Total acquired BBVAPR loans, net |
| 845,328 |
|
| 1,007,888 |
| 703,458 |
|
| 825,919 |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 68,996 |
|
| 73,018 |
| 64,785 |
|
| 69,538 |
Commercial |
| 53,028 |
|
| 81,460 |
| 49,262 |
|
| 53,793 |
Consumer |
| 1,220 |
|
| 1,372 |
| 895 |
|
| 1,112 |
Total acquired Eurobank loans |
| 123,244 |
|
| 155,850 |
| 114,942 |
|
| 124,443 |
Allowance for loan and lease losses on Eurobank loans |
| (23,146) |
|
| (21,281) |
| (24,281) |
|
| (25,174) |
Total acquired Eurobank loans, net |
| 100,098 |
|
| 134,569 |
| 90,661 |
|
| 99,269 |
Total acquired loans, net |
| 945,426 |
|
| 1,142,457 |
| 794,119 |
|
| 925,188 |
Total held for investment, net |
| 3,952,458 |
|
| 4,135,193 |
| 4,344,001 |
|
| 4,044,057 |
Mortgage loans held-for-sale |
| 12,114 |
|
| 12,499 |
| 8,979 |
|
| 12,272 |
Total loans, net | $ | 3,964,572 |
| $ | 4,147,692 | $ | 4,352,980 |
| $ | 4,056,329 |
|
|
|
|
|
|
|
|
|
|
|
2321
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As a result of the devastation caused by hurricanes Irma and Maria, Oriental offered an automatic three-month moratorium for the payment due on certain loans. The level of delinquencies for mortgage and auto loans as of December 31, 2017 was impacted by the loan moratorium. Aging of current and early delinquent loans in moratorium were frozen at September 30, 2017, throughout the moratorium period. In addition, although the repayment schedule was modified as part of the moratorium, certain borrowers continued to make payments shortly after the moratorium, having an impact on the respective delinquency status at December 31, 2017. At September 30, 2018, all of the loan moratoriums have expired, and total delinquency levels have returned to pre-hurricane levels with some improvements.
Originated and Other Loans and Leases Held for Investment
Oriental’s originated and other loans held for investment are encompassed within four portfolio segments: mortgage, commercial, consumer, and auto and leasing.
The following tables below present the aging of the recorded investment in gross originated and other loans held for investment at September 30, 20172018 and December 31, 2016,2017, by class of loans. Mortgage loans past due include delinquent loans in the GNMA buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.option.
| September 30, 2017 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | |||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
| (In thousands) |
|
|
| ||||||||||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional (by origination year): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to the year 2002 | $ | 278 |
| $ | 1,469 |
| $ | 3,074 |
| $ | 4,821 |
| $ | 42,086 |
| $ | 46,907 |
| $ | 283 |
Years 2003 and 2004 |
| 242 |
|
| 3,388 |
|
| 5,963 |
|
| 9,593 |
|
| 74,405 |
|
| 83,998 |
|
| - |
Year 2005 |
| - |
|
| 2,465 |
|
| 3,231 |
|
| 5,696 |
|
| 39,363 |
|
| 45,059 |
|
| - |
Year 2006 |
| 179 |
|
| 1,965 |
|
| 5,536 |
|
| 7,680 |
|
| 55,883 |
|
| 63,563 |
|
| - |
Years 2007, 2008 and 2009 |
| 252 |
|
| 1,706 |
|
| 7,859 |
|
| 9,817 |
|
| 59,451 |
|
| 69,268 |
|
| 98 |
Years 2010, 2011, 2012, 2013 |
| 349 |
|
| 2,213 |
|
| 7,274 |
|
| 9,836 |
|
| 118,409 |
|
| 128,245 |
|
| 414 |
Years 2014, 2015, 2016 and 2017 |
| - |
|
| 184 |
|
| 1,247 |
|
| 1,431 |
|
| 120,538 |
|
| 121,969 |
|
| - |
|
| 1,300 |
|
| 13,390 |
|
| 34,184 |
|
| 48,874 |
|
| 510,135 |
|
| 559,009 |
|
| 795 |
Non-traditional |
| - |
|
| 506 |
|
| 3,529 |
|
| 4,035 |
|
| 14,670 |
|
| 18,705 |
|
| - |
Loss mitigation program |
| 12,621 |
|
| 7,456 |
|
| 15,941 |
|
| 36,018 |
|
| 67,472 |
|
| 103,490 |
|
| 2,576 |
|
| 13,921 |
|
| 21,352 |
|
| 53,654 |
|
| 88,927 |
|
| 592,277 |
|
| 681,204 |
|
| 3,371 |
Home equity secured personal loans |
| - |
|
| - |
|
| 12 |
|
| 12 |
|
| 261 |
|
| 273 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 12,999 |
|
| 12,999 |
|
| - |
|
| 12,999 |
|
| - |
|
| 13,921 |
|
| 21,352 |
|
| 66,665 |
|
| 101,938 |
|
| 592,538 |
|
| 694,476 |
|
| 3,371 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 209,000 |
|
| 209,000 |
|
| - |
Institutional |
| - |
|
| - |
|
| 254 |
|
| 254 |
|
| 45,922 |
|
| 46,176 |
|
| - |
Middle market |
| - |
|
| 303 |
|
| 3,545 |
|
| 3,848 |
|
| 233,829 |
|
| 237,677 |
|
| - |
Retail |
| 292 |
|
| 461 |
|
| 9,471 |
|
| 10,224 |
|
| 233,701 |
|
| 243,925 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,607 |
|
| 3,607 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 15,473 |
|
| 15,473 |
|
| - |
|
| 292 |
|
| 764 |
|
| 13,270 |
|
| 14,326 |
|
| 741,532 |
|
| 755,858 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 163,192 |
|
| 163,192 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 118,091 |
|
| 118,091 |
|
| - |
Middle market |
| 2 |
|
| - |
|
| 881 |
|
| 883 |
|
| 81,061 |
|
| 81,944 |
|
| - |
Retail |
| 608 |
|
| 1,053 |
|
| 1,219 |
|
| 2,880 |
|
| 85,289 |
|
| 88,169 |
|
| - |
Floor plan |
| 8 |
|
| - |
|
| 53 |
|
| 61 |
|
| 38,396 |
|
| 38,457 |
|
| - |
|
| 618 |
|
| 1,053 |
|
| 2,153 |
|
| 3,824 |
|
| 486,029 |
|
| 489,853 |
|
| - |
|
| 910 |
|
| 1,817 |
|
| 15,423 |
|
| 18,150 |
|
| 1,227,561 |
|
| 1,245,711 |
|
| - |
22
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | |||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
| (In thousands) |
|
|
| ||||||||||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional (by origination year): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to the year 2002 | $ | 276 |
| $ | 890 |
| $ | 3,272 |
| $ | 4,438 |
| $ | 38,120 |
| $ | 42,558 |
| $ | 240 |
Years 2003 and 2004 |
| 237 |
|
| 1,740 |
|
| 6,587 |
|
| 8,564 |
|
| 69,146 |
|
| 77,710 |
|
| - |
Year 2005 |
| 92 |
|
| 858 |
|
| 3,515 |
|
| 4,465 |
|
| 36,710 |
|
| 41,175 |
|
| - |
Year 2006 |
| 348 |
|
| 1,484 |
|
| 4,747 |
|
| 6,579 |
|
| 51,392 |
|
| 57,971 |
|
| - |
Years 2007, 2008 and 2009 |
| 178 |
|
| 1,195 |
|
| 7,774 |
|
| 9,147 |
|
| 54,223 |
|
| 63,370 |
|
| 56 |
Years 2010, 2011, 2012, 2013 |
| 258 |
|
| 1,238 |
|
| 7,946 |
|
| 9,442 |
|
| 106,819 |
|
| 116,261 |
|
| 180 |
Years 2014, 2015, 2016, 2017 and 2018 |
| - |
|
| 593 |
|
| 1,303 |
|
| 1,896 |
|
| 130,610 |
|
| 132,506 |
|
| - |
|
| 1,389 |
|
| 7,998 |
|
| 35,144 |
|
| 44,531 |
|
| 487,020 |
|
| 531,551 |
|
| 476 |
Non-traditional |
| - |
|
| 117 |
|
| 2,740 |
|
| 2,857 |
|
| 11,842 |
|
| 14,699 |
|
| - |
Loss mitigation program |
| 10,346 |
|
| 5,435 |
|
| 20,797 |
|
| 36,578 |
|
| 70,819 |
|
| 107,397 |
|
| 2,631 |
|
| 11,735 |
|
| 13,550 |
|
| 58,681 |
|
| 83,966 |
|
| 569,681 |
|
| 653,647 |
|
| 3,107 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 252 |
|
| 252 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 13,325 |
|
| 13,325 |
|
| - |
|
| 13,325 |
|
| - |
|
| 11,735 |
|
| 13,550 |
|
| 72,006 |
|
| 97,291 |
|
| 569,933 |
|
| 667,224 |
|
| 3,107 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 306,372 |
|
| 306,372 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 72,372 |
|
| 72,372 |
|
| - |
Middle market |
| 839 |
|
| - |
|
| 5,481 |
|
| 6,320 |
|
| 175,822 |
|
| 182,142 |
|
| - |
Retail |
| 1,242 |
|
| 309 |
|
| 9,245 |
|
| 10,796 |
|
| 210,101 |
|
| 220,897 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,579 |
|
| 3,579 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 19,347 |
|
| 19,347 |
|
| - |
|
| 2,081 |
|
| 309 |
|
| 14,726 |
|
| 17,116 |
|
| 787,593 |
|
| 804,709 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 163,766 |
|
| 163,766 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 143,886 |
|
| 143,886 |
|
| - |
Middle market |
| - |
|
| 3,480 |
|
| 2,751 |
|
| 6,231 |
|
| 91,484 |
|
| 97,715 |
|
| - |
Retail |
| 720 |
|
| 131 |
|
| 792 |
|
| 1,643 |
|
| 287,755 |
|
| 289,398 |
|
| - |
Floor plan |
| 150 |
|
| - |
|
| 51 |
|
| 201 |
|
| 40,352 |
|
| 40,553 |
|
| - |
|
| 870 |
|
| 3,611 |
|
| 3,594 |
|
| 8,075 |
|
| 727,243 |
|
| 735,318 |
|
| - |
|
| 2,951 |
|
| 3,920 |
|
| 18,320 |
|
| 25,191 |
|
| 1,514,836 |
|
| 1,540,027 |
|
| - |
23
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | |||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
| (In thousands) |
|
|
| ||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards | $ | 580 |
| $ | 200 |
| $ | 602 |
| $ | 1,382 |
| $ | 26,342 |
| $ | 27,724 |
| $ | - |
Overdrafts |
| 27 |
|
| - |
|
| - |
|
| 27 |
|
| 129 |
|
| 156 |
|
| - |
Personal lines of credit |
| 44 |
|
| 3 |
|
| 70 |
|
| 117 |
|
| 1,819 |
|
| 1,936 |
|
| - |
Personal loans |
| 3,864 |
|
| 1,731 |
|
| 1,197 |
|
| 6,792 |
|
| 292,738 |
|
| 299,530 |
|
| - |
Cash collateral personal loans |
| 146 |
|
| 66 |
|
| - |
|
| 212 |
|
| 15,841 |
|
| 16,053 |
|
| - |
|
| 4,661 |
|
| 2,000 |
|
| 1,869 |
|
| 8,530 |
|
| 336,869 |
|
| 345,399 |
|
| - |
Auto and leasing |
| 54,888 |
|
| 26,940 |
|
| 12,148 |
|
| 93,976 |
|
| 990,936 |
|
| 1,084,912 |
|
| - |
Total | $ | 74,235 |
| $ | 46,410 |
| $ | 104,343 |
| $ | 224,988 |
| $ | 3,412,574 |
| $ | 3,637,562 |
| $ | 3,107 |
24
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2017 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | |||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
| (In thousands) |
|
|
| ||||||||||||||||
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional (by origination year): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up to the year 2002 | $ | 86 |
| $ | 938 |
| $ | 3,537 |
| $ | 4,561 |
| $ | 41,579 |
| $ | 46,140 |
| $ | 467 |
Years 2003 and 2004 |
| 92 |
|
| 1,077 |
|
| 6,304 |
|
| 7,473 |
|
| 75,758 |
|
| 83,231 |
|
| - |
Year 2005 |
| 101 |
|
| 383 |
|
| 3,348 |
|
| 3,832 |
|
| 40,669 |
|
| 44,501 |
|
| 68 |
Year 2006 |
| 242 |
|
| 604 |
|
| 5,971 |
|
| 6,817 |
|
| 55,966 |
|
| 62,783 |
|
| 66 |
Years 2007, 2008 and 2009 |
| 358 |
|
| 1,258 |
|
| 8,561 |
|
| 10,177 |
|
| 58,505 |
|
| 68,682 |
|
| 577 |
Years 2010, 2011, 2012, 2013 |
| 233 |
|
| 978 |
|
| 7,393 |
|
| 8,604 |
|
| 116,674 |
|
| 125,278 |
|
| 1,202 |
Years 2014, 2015, 2016 and 2017 |
| - |
|
| 75 |
|
| 1,649 |
|
| 1,724 |
|
| 121,194 |
|
| 122,918 |
|
| - |
|
| 1,112 |
|
| 5,313 |
|
| 36,763 |
|
| 43,188 |
|
| 510,345 |
|
| 553,533 |
|
| 2,380 |
Non-traditional |
| - |
|
| 326 |
|
| 3,543 |
|
| 3,869 |
|
| 14,401 |
|
| 18,270 |
|
| - |
Loss mitigation program |
| 7,233 |
|
| 3,331 |
|
| 18,923 |
|
| 29,487 |
|
| 73,793 |
|
| 103,280 |
|
| 4,981 |
|
| 8,345 |
|
| 8,970 |
|
| 59,229 |
|
| 76,544 |
|
| 598,539 |
|
| 675,083 |
|
| 7,361 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 256 |
|
| 256 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 8,268 |
|
| 8,268 |
|
| - |
|
| 8,268 |
|
| - |
|
| 8,345 |
|
| 8,970 |
|
| 67,497 |
|
| 84,812 |
|
| 598,795 |
|
| 683,607 |
|
| 7,361 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 235,426 |
|
| 235,426 |
|
| - |
Institutional |
| - |
|
| - |
|
| 118 |
|
| 118 |
|
| 44,648 |
|
| 44,766 |
|
| - |
Middle market |
| 765 |
|
| - |
|
| 3,527 |
|
| 4,292 |
|
| 225,649 |
|
| 229,941 |
|
| - |
Retail |
| 352 |
|
| 936 |
|
| 9,695 |
|
| 10,983 |
|
| 235,084 |
|
| 246,067 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 3,998 |
|
| 3,998 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 17,556 |
|
| 17,556 |
|
| - |
|
| 1,117 |
|
| 936 |
|
| 13,340 |
|
| 15,393 |
|
| 762,361 |
|
| 777,754 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 170,015 |
|
| 170,015 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 125,591 |
|
| 125,591 |
|
| - |
Middle market |
| - |
|
| - |
|
| 881 |
|
| 881 |
|
| 84,482 |
|
| 85,363 |
|
| - |
Retail |
| 455 |
|
| 103 |
|
| 1,616 |
|
| 2,174 |
|
| 111,078 |
|
| 113,252 |
|
| - |
Floor plan |
| 9 |
|
| - |
|
| 51 |
|
| 60 |
|
| 35,226 |
|
| 35,286 |
|
| - |
|
| 464 |
|
| 103 |
|
| 2,548 |
|
| 3,115 |
|
| 526,392 |
|
| 529,507 |
|
| - |
|
| 1,581 |
|
| 1,039 |
|
| 15,888 |
|
| 18,508 |
|
| 1,288,753 |
|
| 1,307,261 |
|
| - |
25
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | |||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | |||||||
| (In thousands) |
|
|
| ||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards | $ | 1,000 |
| $ | 363 |
| $ | 565 |
| $ | 1,928 |
| $ | 26,082 |
| $ | 28,010 |
| $ | - |
Overdrafts |
| 45 |
|
| 12 |
|
| 19 |
|
| 76 |
|
| 189 |
|
| 265 |
|
| - |
Personal lines of credit |
| 103 |
|
| 31 |
|
| 9 |
|
| 143 |
|
| 2,201 |
|
| 2,344 |
|
| - |
Personal loans |
| 3,777 |
|
| 1,694 |
|
| 732 |
|
| 6,203 |
|
| 264,691 |
|
| 270,894 |
|
| - |
Cash collateral personal loans |
| 447 |
|
| 32 |
|
| 18 |
|
| 497 |
|
| 14,347 |
|
| 14,844 |
|
| - |
|
| 5,372 |
|
| 2,132 |
|
| 1,343 |
|
| 8,847 |
|
| 307,510 |
|
| 316,357 |
|
| - |
Auto and leasing |
| 43,331 |
|
| 28,275 |
|
| 10,831 |
|
| 82,437 |
|
| 749,000 |
|
| 831,437 |
|
| - |
Total | $ | 63,534 |
| $ | 53,576 |
| $ | 94,262 |
| $ | 211,372 |
| $ | 2,876,609 |
| $ | 3,087,981 |
| $ | 3,371 |
26
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 | $ | 196 |
| $ | 2,176 |
| $ | 3,371 |
| $ | 5,743 |
| $ | 44,542 |
| $ | 50,285 |
| $ | 158 |
Years 2003 and 2004 |
| 156 |
|
| 3,872 |
|
| 7,272 |
|
| 11,300 |
|
| 79,407 |
|
| 90,707 |
|
| - |
Year 2005 |
| - |
|
| 1,952 |
|
| 4,306 |
|
| 6,258 |
|
| 43,751 |
|
| 50,009 |
|
| - |
Year 2006 |
| 506 |
|
| 2,905 |
|
| 6,261 |
|
| 9,672 |
|
| 59,628 |
|
| 69,300 |
|
| - |
Years 2007, 2008 and 2009 |
| 409 |
|
| 1,439 |
|
| 11,732 |
|
| 13,580 |
|
| 63,149 |
|
| 76,729 |
|
| 398 |
Years 2010, 2011, 2012, 2013 |
| 349 |
|
| 1,772 |
|
| 10,417 |
|
| 12,538 |
|
| 127,322 |
|
| 139,860 |
|
| 583 |
Years 2014, 2015 and 2016 |
| 47 |
|
| 123 |
|
| 1,357 |
|
| 1,527 |
|
| 106,672 |
|
| 108,199 |
|
| - |
|
| 1,663 |
|
| 14,239 |
|
| 44,716 |
|
| 60,618 |
|
| 524,471 |
|
| 585,089 |
|
| 1,139 |
Non-traditional |
| - |
|
| 498 |
|
| 4,730 |
|
| 5,228 |
|
| 17,631 |
|
| 22,859 |
|
| - |
Loss mitigation program |
| 8,911 |
|
| 7,205 |
|
| 16,541 |
|
| 32,657 |
|
| 70,871 |
|
| 103,528 |
|
| 1,724 |
|
| 10,574 |
|
| 21,942 |
|
| 65,987 |
|
| 98,503 |
|
| 612,973 |
|
| 711,476 |
|
| 2,863 |
Home equity secured personal loans |
| - |
|
| - |
|
| - |
|
| - |
|
| 337 |
|
| 337 |
|
| - |
GNMA's buy-back option program |
| - |
|
| - |
|
| 9,681 |
|
| 9,681 |
|
| - |
|
| 9,681 |
|
| - |
|
| 10,574 |
|
| 21,942 |
|
| 75,668 |
|
| 108,184 |
|
| 613,310 |
|
| 721,494 |
|
| 2,863 |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 242,770 |
|
| 242,770 |
|
| - |
Institutional |
| - |
|
| - |
|
| 254 |
|
| 254 |
|
| 26,546 |
|
| 26,800 |
|
| - |
Middle market |
| - |
|
| 60 |
|
| 3,319 |
|
| 3,379 |
|
| 231,602 |
|
| 234,981 |
|
| - |
Retail |
| 154 |
|
| 350 |
|
| 6,594 |
|
| 7,098 |
|
| 242,630 |
|
| 249,728 |
|
| - |
Floor plan |
| - |
|
| - |
|
| - |
|
| - |
|
| 2,989 |
|
| 2,989 |
|
| - |
Real estate |
| - |
|
| - |
|
| - |
|
| - |
|
| 16,395 |
|
| 16,395 |
|
| - |
|
| 154 |
|
| 410 |
|
| 10,167 |
|
| 10,731 |
|
| 762,932 |
|
| 773,663 |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| - |
|
| - |
|
| - |
|
| - |
|
| 136,438 |
|
| 136,438 |
|
| - |
Institutional |
| - |
|
| - |
|
| - |
|
| - |
|
| 180,285 |
|
| 180,285 |
|
| - |
Middle market |
| - |
|
| - |
|
| - |
|
| - |
|
| 81,633 |
|
| 81,633 |
|
| - |
Retail |
| 930 |
|
| 100 |
|
| 969 |
|
| 1,999 |
|
| 71,706 |
|
| 73,705 |
|
| - |
Floor plan |
| 8 |
|
| - |
|
| 61 |
|
| 69 |
|
| 32,073 |
|
| 32,142 |
|
| - |
|
| 938 |
|
| 100 |
|
| 1,030 |
|
| 2,068 |
|
| 502,135 |
|
| 504,203 |
|
| - |
|
| 1,092 |
|
| 510 |
|
| 11,197 |
|
| 12,799 |
|
| 1,265,067 |
|
| 1,277,866 |
|
| - |
27
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past |
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | ||||||||||||
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
| Due and |
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | |||||||||||
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | ||||||||||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | ||||||||||||||
| (In thousands) |
|
|
| (In thousands) |
|
|
| ||||||||||||||||||||||||||||||||
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Credit cards | $ | 527 |
| $ | 283 |
| $ | 525 |
| $ | 1,335 |
| $ | 25,023 |
| $ | 26,358 |
| $ | - | $ | 246 |
| $ | 130 |
| $ | 1,227 |
| $ | 1,603 |
| $ | 26,827 |
| $ | 28,430 |
| $ | - |
Overdrafts |
| 16 |
|
| 12 |
|
| 5 |
|
| 33 |
|
| 174 |
|
| 207 |
|
| - |
| 20 |
|
| 6 |
|
| 31 |
|
| 57 |
|
| 157 |
|
| 214 |
|
| - |
Personal lines of credit |
| 41 |
|
| 4 |
|
| 32 |
|
| 77 |
|
| 2,327 |
|
| 2,404 |
|
| - |
| 259 |
|
| 54 |
|
| 87 |
|
| 400 |
|
| 1,820 |
|
| 2,220 |
|
| - |
Personal loans |
| 2,474 |
|
| 1,489 |
|
| 1,081 |
|
| 5,044 |
|
| 241,228 |
|
| 246,272 |
|
| - |
| 3,778 |
|
| 1,494 |
|
| 223 |
|
| 5,495 |
|
| 278,982 |
|
| 284,477 |
|
| - |
Cash collateral personal loans |
| 240 |
|
| 20 |
|
| 4 |
|
| 264 |
|
| 15,010 |
|
| 15,274 |
|
| - |
| 103 |
|
| 59 |
|
| 312 |
|
| 474 |
|
| 14,224 |
|
| 14,698 |
|
| - |
|
| 3,298 |
|
| 1,808 |
|
| 1,647 |
|
| 6,753 |
|
| 283,762 |
|
| 290,515 |
|
| - |
| 4,406 |
|
| 1,743 |
|
| 1,880 |
|
| 8,029 |
|
| 322,010 |
|
| 330,039 |
|
| - |
Auto and leasing |
| 42,714 |
|
| 19,014 |
|
| 8,173 |
|
| 69,901 |
|
| 686,494 |
|
| 756,395 |
|
| - |
| 21,760 |
|
| 10,399 |
|
| 4,232 |
|
| 36,391 |
|
| 847,594 |
|
| 883,985 |
|
| - |
Total | $ | 57,678 |
| $ | 43,274 |
| $ | 96,685 |
| $ | 197,637 |
| $ | 2,848,633 |
| $ | 3,046,270 |
| $ | 2,863 | $ | 36,092 |
| $ | 22,151 |
| $ | 89,497 |
| $ | 147,740 |
| $ | 3,057,152 |
| $ | 3,204,892 |
| $ | 7,361 |
At September 30, 20172018 and December 31, 2016,2017, Oriental had a carrying balance of $94.991.4 million and $136.6 $94.9 million, respectively, in originated and other loans held for investment granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities as part of the institutional commercial loan segment. All originated and other loans granted to the Puerto Rico government are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. On June 30, 2017, Oriental entered into an agreement to sell a performing originated municipal loan, which was due in July 2018, for $28.8 million. The sale reduced near-term risk associated with a likely refinancing. The loan was moved to other loans held-for-sale at June 30, 2017 with a balance of $33.7 million, and included a principal payment of $4.8 million received by Oriental on July 1, 2017. The sale transaction settled on July 5, 2017.
28
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquired Loans
Acquired loans were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20 (Non-refundable fees and Other Costs). We have acquired loans in twothe 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.
26
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following tables present the aging of the recorded investment in gross acquired BBVAPR loans accounted for under ASC 310-20 as of September 30, 20172018 and December 31, 2016,2017, by class of loans:
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past |
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and |
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | ||||||||||||
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | ||||||||||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | ||||||||||||||
| (In thousands) |
|
|
| (In thousands) |
|
|
| ||||||||||||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail | $ | - |
| $ | - |
| $ | 95 |
| $ | 95 |
| $ | 26 |
| $ | 121 |
| $ | - | $ | - |
| $ | - |
| $ | 54 |
| $ | 54 |
| $ | - |
| $ | 54 |
| $ | - |
Floor plan |
| - |
|
| - |
|
| 936 |
|
| 936 |
|
| 393 |
|
| 1,329 |
|
| - |
| - |
|
| - |
|
| 899 |
|
| 899 |
|
| 305 |
|
| 1,204 |
|
| - |
|
| - |
|
| - |
|
| 1,031 |
|
| 1,031 |
|
| 419 |
|
| 1,450 |
|
| - |
| - |
|
| - |
|
| 953 |
|
| 953 |
|
| 305 |
|
| 1,258 |
|
| - |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 296 |
|
| 71 |
|
| 82 |
|
| 449 |
|
| 2,711 |
|
| 3,160 |
|
| - |
| 8 |
|
| - |
|
| 25 |
|
| 33 |
|
| 1,485 |
|
| 1,518 |
|
| - |
Floor plan |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - |
|
| 296 |
|
| 71 |
|
| 84 |
|
| 451 |
|
| 2,711 |
|
| 3,162 |
|
| - |
| 8 |
|
| - |
|
| 27 |
|
| 35 |
|
| 1,485 |
|
| 1,520 |
|
| - |
|
| 296 |
|
| 71 |
|
| 1,115 |
|
| 1,482 |
|
| 3,130 |
|
| 4,612 |
|
| - |
| 8 |
|
| - |
|
| 980 |
|
| 988 |
|
| 1,790 |
|
| 2,778 |
|
| - |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 977 |
|
| 567 |
|
| 467 |
|
| 2,011 |
|
| 24,797 |
|
| 26,808 |
|
| - |
| 330 |
|
| 110 |
|
| 443 |
|
| 883 |
|
| 21,729 |
|
| 22,612 |
|
| - |
Personal loans |
| 75 |
|
| 8 |
|
| 39 |
|
| 122 |
|
| 2,534 |
|
| 2,656 |
|
| - |
| 23 |
|
| 7 |
|
| 58 |
|
| 88 |
|
| 2,214 |
|
| 2,302 |
|
| - |
|
| 1,052 |
|
| 575 |
|
| 506 |
|
| 2,133 |
|
| 27,331 |
|
| 29,464 |
|
| - |
| 353 |
|
| 117 |
|
| 501 |
|
| 971 |
|
| 23,943 |
|
| 24,914 |
|
| - |
Auto |
| 1,635 |
|
| 1,141 |
|
| 453 |
|
| 3,229 |
|
| 23,333 |
|
| 26,562 |
|
| - |
| 665 |
|
| 389 |
|
| 202 |
|
| 1,256 |
|
| 6,238 |
|
| 7,494 |
|
| - |
Total | $ | 2,983 |
| $ | 1,787 |
| $ | 2,074 |
| $ | 6,844 |
| $ | 53,794 |
| $ | 60,638 |
| $ | - | $ | 1,026 |
| $ | 506 |
| $ | 1,683 |
| $ | 3,215 |
| $ | 31,971 |
| $ | 35,186 |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2927
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans 90+ | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past |
|
|
|
|
|
|
|
|
|
|
|
|
| Days Past | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Due and |
|
|
|
|
|
|
|
|
|
|
|
|
| Due and | ||||||||||||
| 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | 30-59 Days |
| 60-89 Days |
| 90+ Days |
| Total Past |
|
|
|
|
| Still | ||||||||||||||
| Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | Past Due |
| Past Due |
| Past Due |
| Due |
| Current |
| Total Loans |
| Accruing | ||||||||||||||
| (In thousands) |
|
|
| (In thousands) |
|
|
| ||||||||||||||||||||||||||||||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Commercial secured by real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail | $ | 33 |
| $ | - |
| $ | 110 |
| $ | 143 |
| $ | - |
| $ | 143 |
| $ | - | $ | - |
| $ | - |
| $ | 119 |
| $ | 119 |
| $ | - |
| $ | 119 |
| $ | - |
Floor plan |
| - |
|
| - |
|
| 219 |
|
| 219 |
|
| 2,171 |
|
| 2,390 |
|
| - |
| - |
|
| - |
|
| 928 |
|
| 928 |
|
| 393 |
|
| 1,321 |
|
| - |
|
| 33 |
|
| - |
|
| 329 |
|
| 362 |
|
| 2,171 |
|
| 2,533 |
|
| - |
| - |
|
| - |
|
| 1,047 |
|
| 1,047 |
|
| 393 |
|
| 1,440 |
|
| - |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 97 |
|
| 34 |
|
| 121 |
|
| 252 |
|
| 2,775 |
|
| 3,027 |
|
| - |
| 36 |
|
| - |
|
| 221 |
|
| 257 |
|
| 2,681 |
|
| 2,938 |
|
| - |
Floor plan |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - |
| - |
|
| - |
|
| 2 |
|
| 2 |
|
| - |
|
| 2 |
|
| - |
|
| 97 |
|
| 34 |
|
| 123 |
|
| 254 |
|
| 2,775 |
|
| 3,029 |
|
| - |
| 36 |
|
| - |
|
| 223 |
|
| 259 |
|
| 2,681 |
|
| 2,940 |
|
| - |
|
| 130 |
|
| 34 |
|
| 452 |
|
| 616 |
|
| 4,946 |
|
| 5,562 |
|
| - |
| 36 |
|
| - |
|
| 1,270 |
|
| 1,306 |
|
| 3,074 |
|
| 4,380 |
|
| - |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 736 |
|
| 369 |
|
| 708 |
|
| 1,813 |
|
| 28,280 |
|
| 30,093 |
|
| - |
| 208 |
|
| 127 |
|
| 1,310 |
|
| 1,645 |
|
| 24,822 |
|
| 26,467 |
|
| - |
Personal loans |
| 48 |
|
| 14 |
|
| 120 |
|
| 182 |
|
| 2,587 |
|
| 2,769 |
|
| - |
| 139 |
|
| 61 |
|
| 45 |
|
| 245 |
|
| 2,203 |
|
| 2,448 |
|
| - |
|
| 784 |
|
| 383 |
|
| 828 |
|
| 1,995 |
|
| 30,867 |
|
| 32,862 |
|
| - |
| 347 |
|
| 188 |
|
| 1,355 |
|
| 1,890 |
|
| 27,025 |
|
| 28,915 |
|
| - |
Auto |
| 3,652 |
|
| 1,355 |
|
| 517 |
|
| 5,524 |
|
| 47,502 |
|
| 53,026 |
|
| - |
| 602 |
|
| 248 |
|
| 179 |
|
| 1,029 |
|
| 20,940 |
|
| 21,969 |
|
| - |
Total | $ | 4,566 |
| $ | 1,772 |
| $ | 1,797 |
| $ | 8,135 |
| $ | 83,315 |
| $ | 91,450 |
| $ | - | $ | 985 |
| $ | 436 |
| $ | 2,804 |
| $ | 4,225 |
| $ | 51,039 |
| $ | 55,264 |
| $ | - |
Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)
Acquired BBVAPR loans, except for credit cards, retail and commercial revolving lines of credits, floor plans and performing auto loans with FICO scores over 660 acquired at a premium, are accounted for by Oriental in accordance with ASC 310-30.
The carrying amount corresponding to acquired BBVAPR loans with deteriorated credit quality, including those accounted under ASC 310-30 by analogy, in the statements of financial condition at September 30, 20172018 and December 31, 20162017 is as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
|
| 2017 |
|
| 2016 |
| 2018 |
|
| 2017 |
|
| (In thousands) |
| (In thousands) | ||||||
Contractual required payments receivable: | $ | 1,503,630 |
| $ | 1,669,602 | $ | 1,340,064 |
| $ | 1,481,616 |
Less: Non-accretable discount |
| 364,548 |
|
| 363,107 |
| 347,173 |
|
| 352,431 |
Cash expected to be collected |
| 1,139,082 |
|
| 1,306,495 |
| 992,891 |
|
| 1,129,185 |
Less: Accretable yield |
| 310,919 |
|
| 354,701 |
| 278,394 |
|
| 308,913 |
Carrying amount, gross |
| 828,163 |
|
| 951,794 |
| 714,497 |
|
| 820,272 |
Less: allowance for loan and lease losses |
| 40,110 |
|
| 31,056 |
| 43,875 |
|
| 45,755 |
Carrying amount, net | $ | 788,053 |
| $ | 920,738 | $ | 670,622 |
| $ | 774,517 |
|
|
|
|
|
|
|
|
|
|
|
3028
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At September 30, 20172018 and December 31, 2016,2017, Oriental had $49.7$44.0 million and $66.2$50.3 million, respectively, in loans granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities as part of its acquired BBVAPR loans accounted for under ASC 310-30. These loans are primarily secured municipal general obligations and funds recovered under a Puerto Rico escheat law. During the third quarter of 2017, Oriental received the scheduled payments of principal from the municipal general obligations and settled the loan payable from funds recovered under the escheat law that was in default.obligations.
The following tables describe the accretable yield and non-accretable discount activity of acquired BBVAPR loans accounted for under ASC 310-30 for the quarters and nine-month periods ended September 30, 2017,2018 and 20162017:
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2018 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 270,148 |
| $ | 56,038 |
| $ | 4,853 |
| $ | 1,486 |
| $ | 332,525 | $ | 243,903 |
| $ | 42,521 |
| $ | 1,071 |
| $ | 497 |
| $ | 287,992 |
Accretion |
| (7,434) |
|
| (7,114) |
|
| (1,350) |
|
| (384) |
|
| (16,282) |
| (6,722) |
|
| (3,977) |
|
| (466) |
|
| (88) |
|
| (11,253) |
Change in expected cash flows |
| - |
|
| 3,716 |
|
| 13 |
|
| 37 |
|
| 3,766 |
| - |
|
| 1,334 |
|
| 3 |
|
| 25 |
|
| 1,362 |
Transfer (to) from non-accretable discount |
| (6,158) |
|
| (2,950) |
|
| (8) |
|
| 26 |
|
| (9,090) | ||||||||||||||
Transfer from (to) non-accretable discount |
| 1,456 |
|
| (1,140) |
|
| 3 |
|
| (26) |
|
| 293 | ||||||||||||||
Balance at end of period | $ | 256,556 |
| $ | 49,690 |
| $ | 3,508 |
| $ | 1,165 |
| $ | 310,919 | $ | 238,637 |
| $ | 38,738 |
| $ | 611 |
| $ | 408 |
| $ | 278,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 306,504 |
| $ | 16,867 |
| $ | 23,960 |
| $ | 19,431 |
| $ | 366,762 | $ | 296,137 |
| $ | 11,143 |
| $ | 23,645 |
| $ | 19,332 |
| $ | 350,257 |
Change in actual and expected losses |
| (2,310) |
|
| (8,679) |
|
| (191) |
|
| (124) |
|
| (11,304) |
| (1,860) |
|
| (1,125) |
|
| 181 |
|
| 13 |
|
| (2,791) |
Transfer from (to) accretable yield |
| 6,158 |
|
| 2,950 |
|
| 8 |
|
| (26) |
|
| 9,090 | ||||||||||||||
Transfer from accretable yield |
| (1,456) |
|
| 1,140 |
|
| (3) |
|
| 26 |
|
| (293) | ||||||||||||||
Balance at end of period | $ | 310,352 |
| $ | 11,138 |
| $ | 23,777 |
| $ | 19,281 |
| $ | 364,548 | $ | 292,821 |
| $ | 11,158 |
| $ | 23,823 |
| $ | 19,371 |
| $ | 347,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2018 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of period | $ | 292,115 |
| $ | 50,366 |
| $ | 8,538 |
| $ | 3,682 |
| $ | 354,701 | $ | 258,498 |
| $ | 46,764 |
| $ | 2,766 |
| $ | 885 |
| $ | 308,913 |
Accretion |
| (23,018) |
|
| (16,608) |
|
| (5,273) |
|
| (1,542) |
| (46,441) |
| (20,710) |
|
| (11,259) |
|
| (1,991) |
|
| (538) |
| (34,498) | ||
Change in expected cash flows |
| 2 |
|
| 19,907 |
|
| 163 |
|
| 123 |
| 20,195 |
| - |
|
| 7,265 |
|
| 829 |
|
| 156 |
| 8,250 | ||
Transfer (to) from non-accretable discount |
| (12,543) |
|
| (3,975) |
|
| 80 |
|
| (1,098) |
|
| (17,536) | ||||||||||||||
Transfer (to) non-accretable discount |
| 849 |
|
| (4,032) |
|
| (993) |
|
| (95) |
|
| (4,271) | ||||||||||||||
Balance at end of period | $ | 256,556 |
| $ | 49,690 |
| $ | 3,508 |
| $ | 1,165 |
| $ | 310,919 | $ | 238,637 |
| $ | 38,738 |
| $ | 611 |
| $ | 408 |
| $ | 278,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of period | $ | 305,615 |
| $ | 16,965 |
| $ | 22,407 |
| $ | 18,120 |
| $ | 363,107 | $ | 299,501 |
| $ | 10,596 |
| $ | 23,050 |
| $ | 19,284 |
| $ | 352,431 |
Change in actual and expected losses |
| (7,806) |
|
| (9,802) |
|
| 1,450 |
|
| 63 |
| (16,095) |
| (5,831) |
|
| (3,470) |
|
| (220) |
|
| (8) |
| (9,529) | ||
Transfer from (to) accretable yield |
| 12,543 |
|
| 3,975 |
|
| (80) |
|
| 1,098 |
|
| 17,536 | ||||||||||||||
Transfer from accretable yield |
| (849) |
|
| 4,032 |
|
| 993 |
|
| 95 |
|
| 4,271 | ||||||||||||||
Balance at end of period | $ | 310,352 |
| $ | 11,138 |
| $ | 23,777 |
| $ | 19,281 |
| $ | 364,548 | $ | 292,821 |
| $ | 11,158 |
| $ | 23,823 |
| $ | 19,371 |
| $ | 347,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3129
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | Quarter Ended September 30, 2017 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period | $ | 283,823 |
| $ | 52,307 |
| $ | 14,103 |
| $ | 4,885 |
| $ | 355,118 | $ | 270,148 |
| $ | 56,038 |
| $ | 4,853 |
| $ | 1,486 |
| $ | 332,525 |
Accretion |
| (8,197) |
| (6,686) |
| (3,107) |
| (662) |
| (18,652) |
| (7,434) |
| (7,114) |
| (1,350) |
| (384) |
| (16,282) | ||||||||
Change in actual and expected losses |
| (1) |
| 1,763 |
| 618 |
| (241) |
| 2,139 |
| - |
| 3,716 |
| 13 |
| 37 |
| 3,766 | ||||||||
Transfer from (to) non-accretable discount |
| 24,056 |
|
| (1,013) |
|
| (525) |
|
| 233 |
|
| 22,751 | ||||||||||||||
Transfer (to) from non-accretable discount |
| (6,158) |
|
| (2,950) |
|
| (8) |
|
| 26 |
|
| (9,090) | ||||||||||||||
Balance at end of period | $ | 299,681 |
| $ | 46,371 |
| $ | 11,089 |
| $ | 4,215 |
| $ | 361,356 | $ | 256,556 |
| $ | 49,690 |
| $ | 3,508 |
| $ | 1,165 |
| $ | 310,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period | $ | 336,153 |
| $ | 18,001 |
| $ | 22,121 |
| $ | 18,225 |
| $ | 394,500 | $ | 306,504 |
| $ | 16,867 |
| $ | 23,960 |
| $ | 19,431 |
| $ | 366,762 |
Change in actual and expected losses |
| (2,591) |
| (1,216) |
| (309) |
| 121 |
| (3,995) |
| (2,310) |
| (8,679) |
| (191) |
| (124) |
| (11,304) | ||||||||
Transfer (to) from accretable yield |
| (24,056) |
|
| 1,013 |
|
| 525 |
|
| (233) |
|
| (22,751) | ||||||||||||||
Transfer from (to) accretable yield |
| 6,158 |
|
| 2,950 |
|
| 8 |
|
| (26) |
|
| 9,090 | ||||||||||||||
Balance at end of period | $ | 309,506 |
| $ | 17,798 |
| $ | 22,337 |
| $ | 18,113 |
| $ | 367,754 | $ | 310,352 |
| $ | 11,138 |
| $ | 23,777 |
| $ | 19,281 |
| $ | 364,548 |
| Nine-Month Period Ended September 30, 2016 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | Mortgage |
| Commercial |
| Auto |
| Consumer |
| Total | ||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period | $ | 268,794 |
| $ | 65,026 |
| $ | 21,578 |
| $ | 6,290 |
| $ | 361,688 | $ | 292,115 |
| $ | 50,366 |
| $ | 8,538 |
| $ | 3,682 |
| $ | 354,701 |
Accretion |
| (24,798) |
| (20,973) |
| (10,934) |
| (2,470) |
| (59,175) |
| (23,018) |
| (16,608) |
| (5,273) |
| (1,542) |
| (46,441) | ||||||||
Change in actual and expected losses |
| (1) |
| 4,745 |
| 1,249 |
| (242) |
| 5,751 |
| 2 |
| 19,907 |
| 163 |
| 123 |
| 20,195 | ||||||||
Transfer (to) from non-accretable discount |
| 55,686 |
|
| (2,427) |
|
| (804) |
|
| 637 |
|
| 53,092 |
| (12,543) |
|
| (3,975) |
|
| 80 |
|
| (1,098) |
|
| (17,536) |
Balance at end of period | $ | 299,681 |
| $ | 46,371 |
| $ | 11,089 |
| $ | 4,215 |
| $ | 361,356 | $ | 256,556 |
| $ | 49,690 |
| $ | 3,508 |
| $ | 1,165 |
| $ | 310,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period | $ | 374,772 |
| $ | 18,545 |
| $ | 22,039 |
| $ | 18,834 |
| $ | 434,190 | $ | 305,615 |
| $ | 16,965 |
| $ | 22,407 |
| $ | 18,120 |
| $ | 363,107 |
Change in actual and expected losses |
| (9,580) |
| (3,174) |
| (506) |
| (84) |
| (13,344) |
| (7,806) |
| (9,802) |
| 1,450 |
| 63 |
| (16,095) | ||||||||
Transfer from (to) accretable yield |
| (55,686) |
|
| 2,427 |
|
| 804 |
|
| (637) |
|
| (53,092) |
| 12,543 |
|
| 3,975 |
|
| (80) |
|
| 1,098 |
|
| 17,536 |
Balance at end of period | $ | 309,506 |
| $ | 17,798 |
| $ | 22,337 |
| $ | 18,113 |
| $ | 367,754 | $ | 310,352 |
| $ | 11,138 |
| $ | 23,777 |
| $ | 19,281 |
| $ | 364,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3230
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquired Eurobank Loans
The carrying amount of acquired Eurobank loans at September 30, 20172018 and December 31, 20162017 is as follows:
| September 30 |
| December 31 | September 30 |
| December 31 | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Contractual required payments receivable: | $ | 182,562 |
| $ | 232,698 | $ | 162,204 |
| $ | 179,960 |
Less: Non-accretable discount |
| 6,935 |
|
| 12,340 |
| 4,187 |
|
| 5,845 |
Cash expected to be collected |
| 175,627 |
|
| 220,358 |
| 158,017 |
|
| 174,115 |
Less: Accretable yield |
| 52,383 |
|
| 64,508 |
| 43,075 |
|
| 49,672 |
Carrying amount, gross |
| 123,244 |
|
| 155,850 |
| 114,942 |
|
| 124,443 |
Less: Allowance for loan and lease losses |
| 23,146 |
|
| 21,281 |
| 24,281 |
|
| 25,174 |
Carrying amount, net | $ | 100,098 |
| $ | 134,569 | $ | 90,661 |
| $ | 99,269 |
The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and nine-month periods ended September 30, 2017,2018 and 2016:2017:
| Quarter Ended September 30, 2017 | 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 | $ | 43,012 |
| 9,157 |
| 1,906 |
| - |
| - |
| 54,075 | $ | 39,269 |
| 4,585 |
| 1,224 |
| - |
| - |
| 45,078 | ||||||||||
Accretion |
| (1,736) |
| (2,480) |
| (39) |
| (11) |
| (73) |
| (4,339) |
| (1,440) |
| (1,883) |
| - |
| (7) |
| (155) |
| (3,485) | ||||||||||
Change in expected cash flows |
| 18 |
| 106 |
| 39 |
| (49) |
| 346 |
| 460 |
| 6 |
| 2,063 |
| - |
| (143) |
| 283 |
| 2,209 | ||||||||||
Transfer from (to) non-accretable discount |
| 1,094 |
|
| 1,448 |
|
| (142) |
|
| 60 |
|
| (273) |
|
| 2,187 | |||||||||||||||||
Transfer (to) from non-accretable discount |
| 188 |
|
| (412) |
|
| (525) |
|
| 150 |
|
| (128) |
|
| (727) | |||||||||||||||||
Balance at end of period | $ | 42,388 |
| $ | 8,231 |
| $ | 1,764 |
| $ | - |
| $ | - |
| $ | 52,383 | $ | 38,023 |
| $ | 4,353 |
| $ | 699 |
| $ | - |
| $ | - |
| $ | 43,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period | $ | 6,687 |
| 2,010 |
| 299 |
| - |
| 14 |
| 9,010 | $ | 2,638 |
| - |
| 981 |
| - |
| 200 |
| 3,819 | ||||||||||
Change in actual and expected losses |
| 20 |
| 126 |
| (39) |
| 60 |
| (55) |
| 112 |
| 63 |
| (412) |
| - |
| 150 |
| (160) |
| (359) | ||||||||||
Transfer from (to) accretable yield |
| (1,094) |
|
| (1,448) |
|
| 142 |
|
| (60) |
|
| 273 |
|
| (2,187) |
| (188) |
|
| 412 |
|
| 525 |
|
| (150) |
|
| 128 |
|
| 727 |
Balance at end of period | $ | 5,613 |
| $ | 688 |
| $ | 402 |
| $ | - |
| $ | 232 |
| $ | 6,935 | $ | 2,513 |
| $ | - |
| $ | 1,506 |
| $ | - |
| $ | 168 |
| $ | 4,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
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 year | $ | 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 year | $ | 4,576 |
| $ | 276 |
| $ | 758 |
| $ | - |
| $ | 235 |
| $ | 5,845 |
Change in actual and expected losses |
| 43 |
|
| (2,272) |
|
| - |
|
| 362 |
|
| (395) |
|
| (2,262) |
Transfer from (to) accretable yield |
| (2,106) |
|
| 1,996 |
|
| 748 |
|
| (362) |
|
| 328 |
|
| 604 |
Balance at end of period | $ | 2,513 |
| $ | - |
| $ | 1,506 |
| $ | - |
| $ | 168 |
| $ | 4,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2017 | ||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| Consumer |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 43,012 |
| $ | 9,157 |
| $ | 1,906 |
|
| - |
| $ | - |
| $ | 54,075 |
Accretion |
| (1,736) |
|
| (2,480) |
|
| (39) |
|
| (11) |
|
| (73) |
|
| (4,339) |
Change in actual and expected losses |
| 18 |
|
| 106 |
|
| 39 |
|
| (49) |
|
| 346 |
|
| 460 |
Transfer from (to) non-accretable discount |
| 1,094 |
|
| 1,448 |
|
| (142) |
|
| 60 |
|
| (273) |
|
| 2,187 |
Balance at end of period | $ | 42,388 |
| $ | 8,231 |
| $ | 1,764 |
| $ | - |
| $ | - |
| $ | 52,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 6,687 |
| $ | 2,010 |
| $ | 299 |
| $ | - |
| $ | 14 |
| $ | 9,010 |
Change in actual and expected losses |
| 20 |
|
| 126 |
|
| (39) |
|
| 60 |
|
| (55) |
|
| 112 |
Transfer (to) from accretable yield |
| (1,094) |
|
| (1,448) |
|
| 142 |
|
| (60) |
|
| 273 |
|
| (2,187) |
Balance at end of period | $ | 5,613 |
| $ | 688 |
| $ | 402 |
| $ | - |
| $ | 232 |
| $ | 6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| Consumer |
| Total | 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 | $ | 45,839 |
| $ | 16,475 |
| $ | 2,194 |
| $ | - |
| $ | - |
| $ | 64,508 | $ | 45,839 |
| $ | 16,475 |
| $ | 2,194 |
| $ | - |
| $ | - |
| $ | 64,508 |
Accretion |
| (5,564) |
| (11,051) |
| (82) |
| (22) |
| (268) |
| (16,987) |
| (5,564) |
| (11,051) |
| (82) |
| (22) |
| (268) |
| (16,987) | ||||||||||
Change in expected cash flows |
| 119 |
| 1,427 |
| 82 |
| (214) |
| 730 |
| 2,144 |
| 119 |
| 1,427 |
| 82 |
| (214) |
| 730 |
| 2,144 | ||||||||||
Transfer from (to) non-accretable discount |
| 1,994 |
|
| 1,380 |
|
| (430) |
|
| 236 |
|
| (462) |
|
| 2,718 |
| 1,994 |
|
| 1,380 |
|
| (430) |
|
| 236 |
|
| (462) |
|
| 2,718 |
Balance at end of period | $ | 42,388 |
| $ | 8,231 |
| $ | 1,764 |
| $ | - |
| $ | - |
| $ | 52,383 | $ | 42,388 |
| $ | 8,231 |
| $ | 1,764 |
| $ | - |
| $ | - |
| $ | 52,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of period | $ | 8,441 |
| $ | 3,880 |
| $ | 11 |
| $ | - |
| $ | 8 |
| $ | 12,340 | $ | 8,441 |
| $ | 3,880 |
| $ | 11 |
| $ | - |
| $ | 8 |
| $ | 12,340 |
Change in actual and expected losses |
| (834) |
| (1,812) |
| (39) |
| 236 |
| (238) |
| (2,687) | ||||||||||||||||||||||
Transfer from (to) accretable yield |
| (1,994) |
|
| (1,380) |
|
| 430 |
|
| (236) |
|
| 462 |
|
| (2,718) | |||||||||||||||||
Change in actual and expected cash flows |
| (834) |
| (1,812) |
| (39) |
| 236 |
| (238) |
| (2,687) | ||||||||||||||||||||||
Transfer (to) from accretable yield |
| (1,994) |
|
| (1,380) |
|
| 430 |
|
| (236) |
|
| 462 |
|
| (2,718) | |||||||||||||||||
Balance at end of period | $ | 5,613 |
| $ | 688 |
| $ | 402 |
| $ | - |
| $ | 232 |
| $ | 6,935 | $ | 5,613 |
| $ | 688 |
| $ | 402 |
| $ | - |
| $ | 232 |
| $ | 6,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | ||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| Consumer |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 48,336 |
| $ | 29,142 |
| $ | 2,204 |
|
| - |
| $ | - |
| $ | 79,682 |
Accretion |
| (2,217) |
|
| (6,570) |
|
| - |
|
| (62) |
|
| (490) |
|
| (9,339) |
Change in actual and expected losses |
| 646 |
|
| 1,719 |
|
| (8) |
|
| 62 |
|
| 490 |
|
| 2,909 |
Transfer from (to) non-accretable discount |
| 3,737 |
|
| (188) |
|
| (146) |
|
| - |
|
| - |
|
| 3,403 |
Balance at end of period | $ | 50,502 |
| $ | 24,103 |
| $ | 2,050 |
| $ | - |
| $ | - |
| $ | 76,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 11,555 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 11,555 |
Change in actual and expected losses |
| (845) |
|
| 617 |
|
| 10 |
|
| - |
|
| - |
|
| (218) |
Transfer (to) from accretable yield |
| (3,737) |
|
| 188 |
|
| 146 |
|
| - |
|
| - |
|
| (3,403) |
Balance at end of period | $ | 6,973 |
| $ | 805 |
| $ | 156 |
| $ | - |
| $ | - |
| $ | 7,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Nine-Month Period Ended September 30, 2016 | ||||||||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Construction & Development Secured by 1-4 Family Residential Properties |
| Leasing |
| Consumer |
| Total | ||||||
| (In thousands) | ||||||||||||||||
Accretable Yield Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 51,954 |
| $ | 26,970 |
| $ | 2,255 |
| $ | - |
| $ | 3,212 |
| $ | 84,391 |
Accretion |
| (6,746) |
|
| (15,193) |
|
| (47) |
|
| (60) |
|
| (1,751) |
|
| (23,797) |
Change in expected cash flows |
| 1,432 |
|
| 14,431 |
|
| (31) |
|
| (15) |
|
| (1,456) |
|
| 14,361 |
Transfer from (to) non-accretable discount |
| 3,862 |
|
| (2,105) |
|
| (127) |
|
| 75 |
|
| (5) |
|
| 1,700 |
Balance at end of period | $ | 50,502 |
| $ | 24,103 |
| $ | 2,050 |
| $ | - |
| $ | - |
| $ | 76,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accretable Discount Activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 12,869 |
| $ | - |
| $ | - |
| $ | - |
| $ | 8,287 |
| $ | 21,156 |
Change in actual and expected cash flows |
| (2,034) |
|
| (1,300) |
|
| 29 |
|
| 75 |
|
| (8,292) |
|
| (11,522) |
Transfer (to) from accretable yield |
| (3,862) |
|
| 2,105 |
|
| 127 |
|
| (75) |
|
| 5 |
|
| (1,700) |
Balance at end of period | $ | 6,973 |
| $ | 805 |
| $ | 156 |
| $ | - |
| $ | - |
| $ | 7,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Non-accrual Loans
The following table presents the recorded investment in loans in non-accrual status by class of loans as of September 30, 20172018 and December 31, 2016:2017:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Originated and other loans and leases held for investment |
|
|
|
|
|
|
|
| ||
Mortgage |
|
|
|
|
|
|
|
| ||
Traditional (by origination year): |
|
|
|
|
|
|
|
| ||
Up to the year 2002 | $ | 2,789 |
| $ | 3,336 | $ | 3,088 |
| $ | 3,070 |
Years 2003 and 2004 |
| 6,107 |
| 7,668 |
| 6,587 |
| 6,380 | ||
Year 2005 |
| 3,367 |
| 4,487 |
| 3,727 |
| 3,280 | ||
Year 2006 |
| 5,537 |
| 6,746 |
| 4,778 |
| 5,905 | ||
Years 2007, 2008 and 2009 |
| 8,110 |
| 11,526 |
| 7,717 |
| 7,984 | ||
Years 2010, 2011, 2012, 2013 |
| 6,858 |
| 10,089 |
| 7,766 |
| 6,259 | ||
Years 2014, 2015, 2016 and 2017 |
| 1,248 |
|
| 1,404 | |||||
Years 2014, 2015, 2016, 2017 and 2018 |
| 1,303 |
|
| 1,649 | |||||
|
| 34,016 |
|
| 45,256 |
| 34,966 |
|
| 34,527 |
Non-traditional |
| 3,529 |
| 4,730 |
| 2,740 |
| 3,543 | ||
Loss mitigation program |
| 17,365 |
|
| 20,744 |
| 23,292 |
|
| 16,783 |
|
| 54,910 |
|
| 70,730 | |||||
Home equity secured personal loans |
| 12 |
|
| - | |||||
|
| 54,922 |
|
| 70,730 |
| 60,998 |
|
| 54,853 |
Commercial |
|
|
|
|
|
|
|
|
| |
Commercial secured by real estate |
|
|
|
|
|
|
|
| ||
Institutional |
| 254 |
| - |
| 10,155 |
| 118 | ||
Middle market |
| 3,848 |
| 4,682 |
| 7,619 |
| 11,394 | ||
Retail |
| 14,358 |
|
| 11,561 |
| 15,662 |
|
| 14,438 |
|
| 18,460 |
|
| 16,243 |
| 33,436 |
|
| 25,950 |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
Middle market |
| 968 |
| 1,278 |
| 6,561 |
| 6,323 | ||
Retail |
| 2,220 |
| 1,950 |
| 2,759 |
| 2,929 | ||
Floor plan |
| 53 |
|
| 61 |
| 51 |
|
| 51 |
|
| 3,241 |
|
| 3,289 |
| 9,371 |
|
| 9,303 |
|
| 21,701 |
|
| 19,532 |
| 42,807 |
|
| 35,253 |
Consumer |
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 565 |
|
| 525 |
| 602 |
|
| 1,227 |
Overdrafts |
| 19 |
|
| - |
| - |
|
| 31 |
Personal lines of credit |
| 9 |
|
| 32 |
| 80 |
|
| 102 |
Personal loans |
| 1,834 |
|
| 1,420 |
| 2,434 |
|
| 900 |
Cash collateral personal loans |
| 18 |
|
| 4 |
| - |
|
| 312 |
|
| 2,445 |
|
| 1,981 |
| 3,116 |
|
| 2,572 |
Auto and leasing |
| 11,811 |
|
| 9,052 |
| 12,185 |
|
| 4,232 |
Total non-accrual originated loans | $ | 90,879 |
| $ | 101,295 | $ | 119,106 |
| $ | 96,910 |
3735
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Acquired BBVAPR loans accounted for under ASC 310-20 |
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate |
|
|
|
|
|
|
|
|
|
|
Retail | $ | 121 |
| $ | 143 | $ | 54 |
| $ | 119 |
Floor plan |
| 936 |
|
| 1,149 |
| 899 |
|
| 928 |
|
| 1,057 |
|
| 1,292 |
| 953 |
|
| 1,047 |
Other commercial and industrial |
|
|
|
|
|
|
|
|
|
|
Retail |
| 82 |
|
| 121 |
| 25 |
|
| 221 |
Floor plan |
| 2 |
|
| 2 |
| 2 |
|
| 2 |
|
| 84 |
|
| 123 |
| 27 |
|
| 223 |
|
| 1,141 |
|
| 1,415 |
| 980 |
|
| 1,270 |
Consumer |
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 467 |
|
| 708 |
| 443 |
|
| 1,310 |
Personal loans |
| 39 |
|
| 120 |
| 58 |
|
| 45 |
|
| 506 |
|
| 828 |
| 501 |
|
| 1,355 |
Auto |
| 481 |
|
| 552 |
| 202 |
|
| 179 |
Total non-accrual acquired BBVAPR loans accounted for under ASC 310-20 |
| 2,128 |
|
| 2,795 |
| 1,683 |
|
| 2,804 |
Total non-accrual loans | $ | 93,007 |
| $ | 104,090 | $ | 120,789 |
| $ | 99,714 |
|
|
|
|
|
|
|
|
|
|
|
Loans accounted for under ASC 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses or are accounted under the cost recovery method.
Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due, but are not placed in non-accrual status until they become 1812 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans. In addition, these loans are excluded from the impairment analysis.
At September 30, 20172018 and December 31, 2016,2017, loans whose terms have been extended and which are classified as troubled-debt restructurings that are not included in non-accrual loans amounted to $109.8$97.7 million and $98.1$109.2 million, respectively, as they are performing under their new terms.
At September 30, 2018 and December 31, 2017, loans that are current in their monthly payments, but placed in non-accrual due to credit deterioration amounted to $23.6 million and $20.1 million, respectively.
3836
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Impaired Loans
Oriental evaluates all loans, some individually and others as homogeneous groups, for purposes of determining impairment. The total investment in impaired commercial loans that were individually evaluated for impairment was $67.8 $69.6million and $54.3$72.3 million at September 30, 20172018 and December 31, 2016,2017, 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 $5.2$7.6 million and $1.8$10.6 million at September 30, 20172018 and December 31, 2016,2017, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was $86.5$85.1 million and $91.6$85.4 million at September 30, 20172018 and December 31, 2016,2017, respectively. Impairment on mortgage loans assessed as troubled-debt restructurings was measured using the present value of cash flows. The allowance for loan losses for these impaired mortgage loans amounted to $9.5$10.6 million and $7.8$9.1 million at September 30, 20172018 and December 31, 2016,2017, respectively.
Originated and Other Loans and Leases Held for Investment
Oriental’s recorded investment in commercial and mortgage loans categorized as originated and other loans and leases held for investment that were individually evaluated for impairment and the related allowance for loan and lease losses at September 30, 20172018 and December 31, 20162017 are as follows:
| September 30, 2017 |
| September 30, 2018 |
| ||||||||||||||||||||
| Unpaid |
| Recorded |
| Related |
|
|
| Unpaid |
| Recorded |
| Related |
|
|
| ||||||||
| Principal |
| Investment |
| Allowance |
| Coverage |
|
| Principal |
| Investment |
| Allowance |
| Coverage |
|
| ||||||
| (In thousands) |
| (In thousands) |
| ||||||||||||||||||||
Impaired loans with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial | $ | 33,159 |
| $ | 30,465 |
| $ | 5,223 |
| 17% |
|
| $ | 38,650 |
| $ | 33,379 |
| $ | 7,607 |
| 23% |
|
|
Residential impaired and troubled-debt restructuring |
| 95,680 |
| 86,511 |
| 9,524 |
| 11% |
|
|
| 95,673 |
| 85,119 |
| 10,620 |
| 12% |
|
| ||||
Impaired loans with no specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| 42,520 |
|
| 36,574 |
|
| N/A |
| 0% |
|
| 41,393 |
|
| 35,513 |
|
| N/A |
| 0% |
| ||
Total investment in impaired loans | $ | 171,359 |
| $ | 153,550 |
| $ | 14,747 |
| 10% |
|
| $ | 175,716 |
| $ | 154,011 |
| $ | 18,227 |
| 12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 |
| December 31, 2017 |
| ||||||||||||||||||||
| Unpaid |
| Recorded |
| Related |
|
|
| Unpaid |
| Recorded |
| Related |
|
|
| ||||||||
| Principal |
| Investment |
| Allowance |
| Coverage |
| Principal |
| Investment |
| Allowance |
| Coverage |
| ||||||||
| (In thousands) |
| (In thousands) |
| ||||||||||||||||||||
Impaired loans with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial | $ | 13,183 |
| $ | 11,698 |
| $ | 1,626 |
| 14% |
| $ | 57,922 |
| $ | 52,585 |
| $ | 10,573 |
| 20% |
| ||
Residential impaired and troubled-debt restructuring |
| 100,101 |
| 91,650 |
|
| 7,761 |
| 8% |
|
| 94,971 |
| 85,403 |
|
| 9,121 |
| 11% |
| ||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| 49,038 |
|
| 41,441 |
|
| N/A |
| 0% |
|
| 22,022 |
|
| 18,953 |
|
| N/A |
| 0% |
| ||
Total investment in impaired loans | $ | 162,322 |
| $ | 144,789 |
| $ | 9,387 |
| 6% |
|
| $ | 174,915 |
| $ | 156,941 |
| $ | 19,694 |
| 13% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3937
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Acquired BBVAPR Loans Accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)
Oriental’s recorded investment in acquired BBVAPR commercial loans accounted for under ASC 310-20 that were individually evaluated for impairment and the related allowance for loan and lease losses at September 30, 20172018 and December 31, 20162017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||
| Unpaid |
| Recorded |
| Related |
|
| Unpaid |
| Recorded |
| Related |
|
| ||||||
| Principal |
| Investment |
| Allowance |
| Coverage | Principal |
| Investment |
| Allowance |
| Coverage | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial | $ | 926 |
| $ | 748 |
| $ | 12 |
| 2% | $ | 926 |
| $ | 747 |
| $ | 4 |
| 1% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | - |
| $ | - |
|
| N/A |
| 0% | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 926 |
| $ | 748 |
| $ | 12 |
| 2% | $ | 926 |
| $ | 747 |
| $ | 4 |
| 1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||
| Unpaid |
| Recorded |
| Specific |
|
| Unpaid |
| Recorded |
| Specific |
|
| ||||||
| Principal |
| Investment |
| Allowance |
| Coverage | Principal |
| Investment |
| Allowance |
| Coverage | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial | $ | 944 |
| $ | 929 |
| $ | 141 |
| 15% | $ | 926 |
| $ | 747 |
| $ | 20 |
| 3% |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 240 |
| $ | 221 |
|
| N/A |
| 0% | $ | - |
| $ | - |
|
| N/A |
| 0% |
Total investment in impaired loans | $ | 1,184 |
| $ | 1,150 |
| $ | 141 |
| 12% | $ | 926 |
| $ | 747 |
| $ | 20 |
| 3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)
Oriental’s recorded investment in acquired BBVAPR loan pools accounted for under ASC 310-30 that have recorded impairments and their related allowance for loan and lease losses at September 30, 20172018 and December 31, 20162017 are as follows:follows:
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
| Coverage |
|
|
|
|
|
|
| Coverage | ||||
| Unpaid |
| Recorded |
|
|
| to Recorded | Unpaid |
| Recorded |
|
|
| to Recorded | ||||||
| Principal |
| Investment |
| Allowance |
| Investment | Principal |
| Investment |
| Allowance |
| Investment | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loan pools with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage | $ | 554,175 |
| $ | 532,948 |
| $ | 8,931 |
| 2% | $ | 510,426 |
| $ | 503,860 |
| $ | 15,258 |
| 3% |
Commercial |
| 254,006 |
|
| 242,334 |
|
| 23,941 |
| 10% |
| 197,516 |
|
| 189,164 |
|
| 22,256 |
| 12% |
Consumer |
| 1,016 |
|
| 96 |
|
| 18 |
| 19% | ||||||||||
Auto |
| 49,347 |
|
| 49,258 |
|
| 7,238 |
| 15% |
| 22,079 |
|
| 20,364 |
|
| 6,343 |
| 31% |
Total investment in impaired loan pools | $ | 857,528 |
| $ | 824,540 |
| $ | 40,110 |
| 5% | $ | 731,037 |
| $ | 713,484 |
| $ | 43,875 |
| 6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4038
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31 , 2016 | December 31 , 2017 | ||||||||||||||||||
|
|
|
|
|
|
|
| Coverage |
|
|
|
|
|
|
| Coverage | ||||
| Unpaid |
| Recorded |
|
|
| to Recorded | Unpaid |
| Recorded |
|
|
| to Recorded | ||||||
| Principal |
| Investment |
| Allowance |
| Investment | Principal |
| Investment |
| Allowance |
| Investment | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loan pools with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Mortgage | $ | 595,757 |
| $ | 569,250 |
| $ | 2,682 |
| 0% | $ | 547,064 |
| $ | 532,052 |
| $ | 14,085 |
| 3% |
Commercial |
| 199,092 |
| 195,528 |
| 23,452 |
| 12% |
| 250,451 |
| 241,124 |
| 23,691 |
| 10% | ||||
Consumer |
| 2,468 |
| 1,431 |
| 18 |
| 1% | ||||||||||||
Auto |
| 92,797 |
|
| 85,676 |
|
| 4,922 |
| 6% |
| 43,440 |
|
| 43,696 |
|
| 7,961 |
| 18% |
Total investment in impaired loan pools | $ | 887,646 |
| $ | 850,454 |
| $ | 31,056 |
| 4% | $ | 843,423 |
| $ | 818,303 |
| $ | 45,755 |
| 6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above only present information with respect to acquired BBVAPR loan pools accounted for under ASC 310-30 if there is a recorded impairment to such loan pools and a specific allowance for loan losses.
Oriental’s recorded investment in acquired Eurobank loan pools that have recorded impairments and their related allowance for loan and lease losses as of September 30, 20172018 and December 31, 20162017 are as follows:
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||
|
|
|
|
|
|
|
| Coverage |
|
|
|
|
|
|
| Coverage | ||||
| Unpaid |
| Recorded |
|
|
| to Recorded | Unpaid |
| Recorded |
|
|
| to Recorded | ||||||
| Principal |
| Investment |
| Allowance |
| Investment | Principal |
| Investment |
| Allowance |
| Investment | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loan pools with specific allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans secured by 1-4 family residential properties | $ | 81,679 |
| $ | 68,996 |
| $ | 14,219 |
| 21% | $ | 72,874 |
| $ | 64,785 |
| $ | 15,155 |
| 23% |
Commercial |
| 58,043 |
| 51,523 |
| 8,922 |
| 17% |
| 50,430 |
| 49,262 |
| 9,122 |
| 19% | ||||
Consumer |
| 15 |
|
| 1,220 |
|
| 5 |
| 0% |
| 13 |
|
| 4 |
|
| 4 |
| 100% |
Total investment in impaired loan pools | $ | 139,737 |
| $ | 121,739 |
| $ | 23,146 |
| 19% | $ | 123,317 |
| $ | 114,051 |
| $ | 24,281 |
| 21% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||
|
|
|
|
|
|
|
| Coverage |
|
|
|
|
|
|
| Coverage | ||||
| Unpaid |
| Recorded |
| Specific |
| to Recorded | Unpaid |
| Recorded |
| Specific |
| to Recorded | ||||||
| Principal |
| Investment |
| Allowance |
| Investment | Principal |
| Investment |
| Allowance |
| Investment | ||||||
| (In thousands) | (In thousands) | ||||||||||||||||||
Impaired loan pools with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans secured by 1-4 family residential properties | $ | 88,017 |
| $ | 73,018 |
| $ | 11,947 |
| 16% | $ | 81,132 |
| $ | 69,538 |
| $ | 15,187 |
| 22% |
Commercial |
| 81,992 |
| 72,140 |
| 9,328 |
| 13% |
| 58,099 |
| 53,793 |
| 9,983 |
| 19% | ||||
Consumer |
| 29 |
|
| 1,372 |
|
| 6 |
| 0% |
| 15 |
|
| 4 |
|
| 4 |
| 100% |
Total investment in impaired loan pools | $ | 170,038 |
| $ | 146,530 |
| $ | 21,281 |
| 15% | $ | 139,246 |
| $ | 123,335 |
| $ | 25,174 |
| 20% |
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.
4139
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 September 30, 20172018 and 2016:2017:
| Quarter Ended September 30, | Quarter Ended September 30, | ||||||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||||
| Interest Income Recognized |
| Average Recorded Investment |
| Interest Income Recognized |
| Average Recorded Investment | Interest Income Recognized |
| Average Recorded Investment |
| Interest Income Recognized |
| Average Recorded Investment | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Originated and other loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial | $ | 306 |
| $ | 24,178 |
| $ | 162 |
| $ | 73,729 | $ | 150 |
| $ | 35,765 |
| $ | 306 |
| $ | 24,178 |
Residential troubled-debt restructuring |
| 576 |
| 86,694 |
| 765 |
| 91,345 |
| 695 |
| 84,787 |
| 576 |
| 86,694 | ||||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| 675 |
|
| 36,133 |
|
| 259 |
|
| 62,946 |
| 271 |
|
| 31,315 |
|
| 675 |
|
| 36,133 |
|
| 1,557 |
|
| 147,005 |
|
| 1,186 |
|
| 228,020 |
| 1,116 |
|
| 151,867 |
|
| 1,557 |
|
| 147,005 |
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial |
| - |
|
| 751 |
|
| 15 |
|
| 323 |
| - |
|
| 747 |
|
| - |
|
| 751 |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| - |
|
| - |
|
| - |
|
| 952 |
| - |
|
| - |
|
| - |
|
| - |
Total interest income from impaired loans | $ | 1,557 |
| $ | 147,756 |
| $ | 1,201 |
| $ | 229,295 | $ | 1,116 |
| $ | 152,614 |
| $ | 1,557 |
| $ | 147,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | ||||||||||||||||||||
| 2017 |
|
| 2016 | 2018 |
|
| 2017 | ||||||||||||||
| 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 | $ | 612 |
| $ | 17,298 |
| $ | 202 |
| $ | 155,094 | $ | 432 |
| $ | 44,691 |
| $ | 612 |
| $ | 17,298 |
Residential troubled-debt restructuring |
| 1,685 |
| 87,951 |
|
| 2,321 |
| 90,881 |
| 2,028 |
| 84,671 |
|
| 1,685 |
| 87,951 | ||||
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| 1,350 |
|
| 41,519 |
|
| 749 |
|
| 42,050 |
| 812 |
|
| 23,736 |
|
| 1,350 |
|
| 41,519 |
Total interest income from impaired loans | $ | 3,647 |
| $ | 146,768 |
| $ | 3,272 |
| $ | 288,025 | $ | 3,272 |
| $ | 153,098 |
| $ | 3,647 |
| $ | 146,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans with specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial | $ | - |
| $ | 810 |
| $ | 45 |
| $ | 108 | $ | - |
| $ | 747 |
| $ | - |
| $ | 810 |
Impaired loans with no specific allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| - |
|
| - |
|
| - |
|
| 736 | |||||||||||
Total interest income from impaired loans | $ | 3,647 | �� | $ | 147,578 |
| $ | 3,317 |
| $ | 288,869 | $ | 3,272 |
| $ | 153,845 |
| $ | 3,647 |
| $ | 147,578 |
4240
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Modifications
The following tables present the troubled-debt restructurings in all loan portfolios during the quarters and nine-month periods ended September 30, 20172018 and 2016.2017.
| Quarter Ended September 30, 2017 | 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) | 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 | 15 |
| $ | 1,796 |
| 6.18% |
| 401 |
| $ | 1,804 |
| 4.28% |
| 409 | 21 |
| $ | 2,621 |
| 5.42% |
| 373 |
| $ | 2,579 |
| 4.19% |
| 344 |
Commercial | 2 |
| 154 |
| 7.99% |
| 53 |
| 154 |
| 8.45% |
| 51 | 5 |
| 3,007 |
| 5.79% |
| 71 |
| 3,002 |
| 5.10% |
| 83 | ||||
Consumer | 30 |
| 383 |
| 11.52% |
| 61 |
| 383 |
| 11.21% |
| 68 | 52 |
| 758 |
| 15.06% |
| 66 |
| 765 |
| 12.04% |
| 73 | ||||
Auto | 2 |
| 23 |
| 6.42% |
| 63 |
| 23 |
| 8.13% |
| 31 | 2 |
| 40 |
| 10.28% |
| 37 |
| 40 |
| 10.28% |
| 37 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Nine-Month Period Ended September 30, 2017 | 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) | 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 | 74 |
| $ | 9,149 |
| 6.27% |
| 390 |
| $ | 9,132 |
| 4.26% |
| 384 | 104 |
| $ | 14,087 |
| 5.61% |
| 382 |
| $ | 13,597 |
| 4.82% |
| 344 |
Commercial | 20 |
| 3,527 |
| 6.51% |
| 55 |
| 3,528 |
| 5.55% |
| 66 | 13 |
| 10,341 |
| 5.50% |
| 53 |
| 10,332 |
| 5.74% |
| 60 | ||||
Consumer | 93 |
| 1,262 |
| 11.87% |
| 64 |
| 1,301 |
| 10.79% |
| 70 | 101 |
| 1,469 |
| 15.58% |
| 59 |
| 1,477 |
| 11.51% |
| 72 | ||||
Auto | 9 |
| 134 |
| 7.24% |
| 66 |
| 135 |
| 11.75% |
| 37 | 2 |
| 40 |
| 10.28% |
| 37 |
| 40 |
| 10.28% |
| 37 |
4341
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | Quarter Ended September 30, 2017 | ||||||||||||||||||||||||||||
| Number of contracts |
| Pre-Modification Outstanding Recorded Investment |
| Pre-Modification Weighted Average Rate |
| Pre-Modification Weighted Average Term (in Months) |
| Post-Modification Outstanding Recorded Investment |
| Post-Modification Weighted Average Rate |
| Post-Modification Weighted Average Term (in Months) | 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 | 20 |
| $ | 2,737 |
| 6.28% |
| 297 |
| $ | 2,768 |
| 4.72% |
| 387 | 15 |
| $ | 1,796 |
| 6.18% |
| 401 |
| $ | 1,804 |
| 4.28% |
| 409 |
Commercial | 5 |
| 7,352 |
| 5.31% |
| 65 |
| 7,352 |
| 5.89% |
| 130 | 2 |
| 154 |
| 7.99% |
| 53 |
| 154 |
| 8.45% |
| 51 | ||||
Consumer | 20 |
| 183 |
| 14.73% |
| 72 |
| 210 |
| 12.72% |
| 54 | 30 |
| 383 |
| 11.52% |
| 61 |
| 383 |
| 11.21% |
| 68 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Auto | 2 |
| 23 |
| 6.42% |
| 63 |
| 23 |
| 8.13% |
| 31 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Nine-Month Period Ended September 30, 2016 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||||||||||
| Number of contracts |
| Pre-Modification Outstanding Recorded Investment |
| Pre-Modification Weighted Average Rate |
| Pre-Modification Weighted Average Term (in Months) |
| Post-Modification Outstanding Recorded Investment |
| Post-Modification Weighted Average Rate |
| Post-Modification Weighted Average Term (in Months) | 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 | 72 |
| $ | 9,558 |
| 6.00% |
| 347 |
| $ | 9,284 |
| 4.69% |
| 462 | 74 |
| $ | 9,149 |
| 6.27% |
| 390 |
| $ | 9,132 |
| 4.26% |
| 384 |
Commercial | 13 |
| 8,675 |
| 5.53% |
| 63 |
| 8,676 |
| 5.95% |
| 120 | 20 |
| 3,527 |
| 6.51% |
| 55 |
| 3,528 |
| 5.55% |
| 66 | ||||
Consumer | 67 |
| 739 |
| 13.63% |
| 74 |
| 813 |
| 11.12% |
| 67 | 93 |
| 1,262 |
| 11.87% |
| 64 |
| 1,301 |
| 10.79% |
| 70 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Auto | 9 |
| 134 |
| 7.24% |
| 66 |
| 135 |
| 11.75% |
| 37 |
The following table presents troubled-debt restructurings for which there was a payment default during the twelve monthtwelve-month periods ended September 30, 20172018 and 2016:2017:
| Twelve Month Period Ended September 30, | Twelve-Month Period Ended September 30, | ||||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||
| 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 | 28 |
| $ | 2,663 |
| 23 |
| $ | 3,437 | 19 |
| $ | 2,756 |
| 28 |
| $ | 2,663 | ||
Commercial | 8 |
| $ | 868 |
| 2 |
| $ | 157 | 2 |
| $ | 281 |
| 8 |
| $ | 868 | ||
Consumer | 22 |
| $ | 248 |
| 7 |
| $ | 68 | 11 |
| $ | 107 |
| 22 |
| $ | 248 |
44
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.
43
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of September 30, 20172018 and December 31, 2016,2017, 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:
| September 30, 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 | $ | 306,372 |
| $ | 263,522 |
| $ | 26,887 |
| $ | 15,963 |
| $ | - |
| $ | - |
Institutional |
| 72,372 |
|
| 62,021 |
|
| - |
|
| 10,351 |
|
| - |
|
| - |
Middle market |
| 182,142 |
|
| 133,506 |
|
| 31,912 |
|
| 16,724 |
|
| - |
|
| - |
Retail |
| 220,897 |
|
| 194,554 |
|
| 4,024 |
|
| 22,319 |
|
| - |
|
| - |
Floor plan |
| 3,579 |
|
| 2,281 |
|
| - |
|
| 1,298 |
|
| - |
|
| - |
Real estate |
| 19,347 |
|
| 19,347 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 804,709 |
|
| 675,231 |
|
| 62,823 |
|
| 66,655 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 163,766 |
|
| 135,269 |
|
| 28,497 |
|
| - |
|
| - |
|
| - |
Institutional |
| 143,886 |
|
| 143,886 |
|
| - |
|
| - |
|
| - |
|
| - |
Middle market |
| 97,715 |
|
| 74,204 |
|
| 4,948 |
|
| 18,563 |
|
| - |
|
| - |
Retail |
| 289,398 |
|
| 286,090 |
|
| 213 |
|
| 3,095 |
|
| - |
|
| - |
Floor plan |
| 40,553 |
|
| 37,766 |
|
| 2,736 |
|
| 51 |
|
| - |
|
| - |
|
| 735,318 |
|
| 677,215 |
|
| 36,394 |
|
| 21,709 |
|
| - |
|
| - |
Total |
| 1,540,027 |
|
| 1,352,446 |
|
| 99,217 |
|
| 88,364 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 54 |
|
| - |
|
| - |
|
| 54 |
|
| - |
|
| - |
Floor plan |
| 1,204 |
|
| 305 |
|
| - |
|
| 899 |
|
| - |
|
| - |
|
| 1,258 |
|
| 305 |
|
| - |
|
| 953 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 1,518 |
|
| 1,518 |
|
| - |
|
| - |
|
| - |
|
| - |
Floor plan |
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| 1,520 |
|
| 1,518 |
|
| - |
|
| 2 |
|
| - |
|
| - |
Total |
| 2,778 |
|
| 1,823 | �� |
| - |
|
| 955 |
|
| - |
|
| - |
44
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2018 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional |
| 531,551 |
|
| 496,407 |
|
| - |
|
| 35,144 |
|
| - |
|
| - |
Non-traditional |
| 14,699 |
|
| 11,959 |
|
| - |
|
| 2,740 |
|
| - |
|
| - |
Loss mitigation program |
| 107,397 |
|
| 86,600 |
|
| - |
|
| 20,797 |
|
| - |
|
| - |
Home equity secured personal loans |
| 252 |
|
| 252 |
|
| - |
|
| - |
|
| - |
|
| - |
GNMA's buy-back option program |
| 13,325 |
|
| - |
|
| - |
|
| 13,325 |
|
| - |
|
| - |
|
| 667,224 |
|
| 595,218 |
|
| - |
|
| 72,006 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 27,724 |
|
| 27,122 |
|
| - |
|
| 602 |
|
| - |
|
| - |
Overdrafts |
| 156 |
|
| 129 |
|
| - |
|
| 27 |
|
| - |
|
| - |
Unsecured personal lines of credit |
| 1,936 |
|
| 1,865 |
|
| - |
|
| 71 |
|
| - |
|
| - |
Unsecured personal loans |
| 299,530 |
|
| 298,334 |
|
| - |
|
| 1,196 |
|
| - |
|
| - |
Cash collateral personal loans |
| 16,053 |
|
| 16,053 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 345,399 |
|
| 343,503 |
|
| - |
|
| 1,896 |
|
| - |
|
| - |
Auto and Leasing |
| 1,084,912 |
|
| 1,072,764 |
|
| - |
|
| 12,148 |
|
| - |
|
| - |
Total |
| 2,097,535 |
|
| 2,011,485 |
|
| - |
|
| 86,050 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - acquired loans (accounted for under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 22,612 |
|
| 22,169 |
|
| - |
|
| 443 |
|
| - |
|
| - |
Personal loans |
| 2,302 |
|
| 2,244 |
|
| - |
|
| 58 |
|
| - |
|
| - |
|
| 24,914 |
|
| 24,413 |
|
| - |
|
| 501 |
|
| - |
|
| - |
Auto |
| 7,494 |
|
| 7,292 |
|
| - |
|
| 202 |
|
| - |
|
| - |
|
| 32,408 |
|
| 31,705 |
|
| - |
|
| 703 |
|
| - |
|
| - |
| $ | 3,672,748 |
| $ | 3,397,459 |
| $ | 99,217 |
| $ | 176,072 |
| $ | - |
| $ | - |
45
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | December 31, 2017 | ||||||||||||||||||||||||||||||||
| 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 | $ | 209,000 |
| $ | 192,513 |
| $ | 14,550 |
| $ | 1,937 |
| $ | - |
| $ | - | $ | 235,426 |
| $ | 200,395 |
| $ | 33,094 |
| $ | 1,937 |
| $ | - |
| $ | - |
Institutional |
| 46,176 |
| 34,348 |
| - |
| 11,828 |
| - |
| - |
| 44,766 |
| 33,856 |
| - |
| 10,910 |
| - |
| - | ||||||||||
Middle market |
| 237,677 |
| 198,479 |
| 11,020 |
| 28,178 |
| - |
| - |
| 229,941 |
| 196,058 |
| 4,749 |
| 29,134 |
| - |
| - | ||||||||||
Retail |
| 243,925 |
| 214,924 |
| 7,585 |
| 21,416 |
| - |
| - |
| 246,067 |
| 215,121 |
| 8,058 |
| 22,888 |
| - |
| - | ||||||||||
Floor plan |
| 3,607 |
| 2,287 |
| 1,320 |
| - |
| - |
| - |
| 3,998 |
| 2,678 |
| 1,320 |
| - |
| - |
| - | ||||||||||
Real estate |
| 15,473 |
| 15,473 |
| - |
| - |
| - |
| - |
| 17,556 |
|
| 17,556 |
|
| - |
|
| - |
|
| - |
|
| - | |||||
|
| 755,858 |
| 658,024 |
| 34,475 |
| 63,359 |
| - |
| - |
| 777,754 |
|
| 665,664 |
|
| 47,221 |
|
| 64,869 |
|
| - |
|
| - | |||||
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Corporate |
| 163,192 |
| 163,192 |
| - |
| - |
| - |
| - |
| 170,015 |
| 157,683 |
| 12,332 |
| - |
| - |
| - | ||||||||||
Institutional |
| 118,091 |
| 118,091 |
| - |
| - |
| - |
| - |
| 125,591 |
| 125,591 |
| - |
| - |
| - |
| - | ||||||||||
Middle market |
| 81,944 |
| 65,530 |
| 8,618 |
| 7,796 |
| - |
| - |
| 85,363 |
| 71,222 |
| 6,386 |
| 7,755 |
| - |
| - | ||||||||||
Retail |
| 88,169 |
| 83,729 |
| 891 |
| 3,549 |
| - |
| - |
| 113,252 |
| 109,477 |
| 562 |
| 3,213 |
| - |
| - | ||||||||||
Floor plan |
| 38,457 |
| 35,368 |
| 3,036 |
| 53 |
| - |
| - |
| 35,286 |
|
| 32,165 |
|
| 3,070 |
|
| 51 |
|
| - |
|
| - | |||||
|
| 489,853 |
| 465,910 |
| 12,545 |
| 11,398 |
| - |
| - |
| 529,507 |
|
| 496,138 |
|
| 22,350 |
|
| 11,019 |
|
| - |
|
| - | |||||
Total |
| 1,245,711 |
| 1,123,934 |
| 47,020 |
| 74,757 |
| - |
| - |
| 1,307,261 |
|
| 1,161,802 |
|
| 69,571 |
|
| 75,888 |
|
| - |
|
| - | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Commercial - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Retail |
| 121 |
| - |
| - |
| 121 |
| - |
| - |
| 119 |
| - |
| - |
| 119 |
| - |
| - | ||||||||||
Floor plan |
| 1,329 |
|
| 393 |
|
| - |
|
| 936 |
|
| - |
|
| - |
| 1,321 |
|
| 393 |
|
| - |
|
| 928 |
|
| - |
|
| - |
|
| 1,450 |
|
| 393 |
|
| - |
|
| 1,057 |
|
| - |
|
| - |
| 1,440 |
|
| 393 |
|
| - |
|
| 1,047 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Retail |
| 3,160 |
| 3,154 |
| - |
| 6 |
| - |
| - |
| 2,938 |
| 2,933 |
| - |
| 5 |
| - |
| - | ||||||||||
Floor plan |
| 2 |
| - |
| - |
| 2 |
| - |
| - |
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| - | |||||
|
| 3,162 |
| 3,154 |
| - |
| 8 |
| - |
| - |
| 2,940 |
|
| 2,933 |
|
| - |
|
| 7 |
|
| - |
|
| - | |||||
Total |
| 4,612 |
| 3,547 |
| - |
| 1,065 |
| - |
| - |
| 4,380 |
|
| 3,326 |
|
| - |
|
| 1,054 |
|
| - |
|
| - |
46
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | December 31, 2017 | ||||||||||||||||||||||||||||||||
| Risk Ratings | Risk Ratings | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Balance |
|
|
| Special |
|
|
|
|
|
| Balance |
|
|
| Special |
|
|
|
|
|
| ||||||||||||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Traditional |
| 559,009 |
| 524,825 |
| - |
| 34,184 |
| - |
| - |
| 553,533 |
| 516,770 |
| - |
| 36,763 |
| - |
| - | ||||||||||
Non-traditional |
| 18,705 |
| 15,176 |
| - |
| 3,529 |
| - |
| - |
| 18,270 |
| 14,727 |
| - |
| 3,543 |
| - |
| - | ||||||||||
Loss mitigation program |
| 103,490 |
| 87,549 |
| - |
| 15,941 |
| - |
| - |
| 103,280 |
| 84,357 |
| - |
| 18,923 |
| - |
| - | ||||||||||
Home equity secured personal loans |
| 273 |
| 261 |
| - |
| 12 |
| - |
| - |
| 256 |
| 256 |
| - |
| - |
| - |
| - | ||||||||||
GNMA's buy-back option program |
| 12,999 |
| - |
| - |
| 12,999 |
| - |
| - |
| 8,268 |
|
| - |
|
| - |
|
| 8,268 |
|
| - |
|
| - | |||||
|
| 694,476 |
| 627,811 |
| - |
| 66,665 |
| - |
| - |
| 683,607 |
|
| 616,110 |
|
| - |
|
| 67,497 |
|
| - |
|
| - | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Credit cards |
| 28,010 |
| 27,445 |
| - |
| 565 |
| - |
| - |
| 28,430 |
| 27,203 |
| - |
| 1,227 |
| - |
| - | ||||||||||
Overdrafts |
| 265 |
| 190 |
| - |
| 75 |
| - |
| - |
| 214 |
| 158 |
| - |
| 56 |
| - |
| - | ||||||||||
Unsecured personal lines of credit |
| 2,344 |
| 2,335 |
| - |
| 9 |
| - |
| - |
| 2,220 |
| 2,133 |
| - |
| 87 |
| - |
| - | ||||||||||
Unsecured personal loans |
| 270,894 |
| 270,160 |
| - |
| 734 |
| - |
| - |
| 284,477 |
| 284,255 |
| - |
| 222 |
| - |
| - | ||||||||||
Cash collateral personal loans |
| 14,844 |
| 14,826 |
| - |
| 18 |
| - |
| - |
| 14,698 |
|
| 14,386 |
|
| - |
|
| 312 |
|
| - |
|
| - | |||||
|
| 316,357 |
| 314,956 |
| - |
| 1,401 |
| - |
| - |
| 330,039 |
|
| 328,135 |
|
| - |
|
| 1,904 |
|
| - |
|
| - | |||||
Auto and Leasing |
| 831,437 |
| 820,606 |
| - |
| 10,831 |
| - |
| - |
| 883,985 |
|
| 879,753 |
|
| - |
|
| 4,232 |
|
| - |
|
| - | |||||
Total |
| 1,842,270 |
| 1,763,373 |
| - |
| 78,897 |
| - |
| - |
| 1,897,631 |
|
| 1,823,998 |
|
| - |
|
| 73,633 |
|
| - |
|
| - | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Retail - acquired loans (accounted for under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Retail - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Credit cards |
| 26,808 |
| 26,342 |
| - |
| 466 |
| - |
| - |
| 26,467 |
| 25,156 |
| - |
| 1,311 |
| - |
| - | ||||||||||
Personal loans |
| 2,656 |
| 2,617 |
| - |
| 39 |
| - |
| - |
| 2,448 |
|
| 2,402 |
|
| - |
|
| 46 |
|
| - |
|
| - | |||||
|
| 29,464 |
| 28,959 |
| - |
| 505 |
| - |
| - |
| 28,915 |
|
| 27,558 |
|
| - |
|
| 1,357 |
|
| - |
|
| - | |||||
Auto |
| 26,562 |
| 26,109 |
| - |
| 453 |
| - |
| - |
| 21,969 |
|
| 21,790 |
|
| - |
|
| 179 |
|
| - |
|
| - | |||||
Total |
| 50,884 |
|
| 49,348 |
|
| - |
|
| 1,536 |
|
| - |
|
| - | |||||||||||||||||
|
| 56,026 |
| 55,068 |
| - |
| 958 |
| - |
| - | $ | 3,260,156 |
| $ | 3,038,474 |
| $ | 69,571 |
| $ | 152,111 |
| $ | - |
| $ | - | |||||
| $ | 3,148,619 |
| $ | 2,945,922 |
| $ | 47,020 |
| $ | 155,677 |
| $ | - |
| $ | - |
47
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Commercial - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | $ | 242,770 |
| $ | 226,768 |
| $ | 16,002 |
| $ | - |
| $ | - |
| $ | - |
Institutional |
| 26,800 |
|
| 16,067 |
|
| 9,090 |
|
| 1,643 |
|
| - |
|
| - |
Middle market |
| 234,981 |
|
| 194,913 |
|
| 11,689 |
|
| 28,379 |
|
| - |
|
| - |
Retail |
| 249,728 |
|
| 222,205 |
|
| 8,559 |
|
| 18,964 |
|
| - |
|
| - |
Floor plan |
| 2,989 |
|
| 2,989 |
|
| - |
|
| - |
|
| - |
|
| - |
Real estate |
| 16,395 |
|
| 16,395 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 773,663 |
|
| 679,337 |
|
| 45,340 |
|
| 48,986 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 136,438 |
|
| 136,438 |
|
| - |
|
| - |
|
| - |
|
| - |
Institutional |
| 180,285 |
|
| 180,185 |
|
| 100 |
|
| - |
|
| - |
|
| - |
Middle market |
| 81,633 |
|
| 63,556 |
|
| 16,150 |
|
| 1,927 |
|
| - |
|
| - |
Retail |
| 73,705 |
|
| 68,743 |
|
| 731 |
|
| 4,231 |
|
| - |
|
| - |
Floor plan |
| 32,142 |
|
| 29,267 |
|
| 2,814 |
|
| 61 |
|
| - |
|
| - |
|
| 504,203 |
|
| 478,189 |
|
| 19,795 |
|
| 6,219 |
|
| - |
|
| - |
Total |
| 1,277,866 |
|
| 1,157,526 |
|
| 65,135 |
|
| 55,205 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial secured by real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 143 |
|
| - |
|
| - |
|
| 143 |
|
| - |
|
| - |
Floor plan |
| 2,390 |
|
| 905 |
|
| 337 |
|
| 1,148 |
|
| - |
|
| - |
|
| 2,533 |
|
| 905 |
|
| 337 |
|
| 1,291 |
|
| - |
|
| - |
Other commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| 3,027 |
|
| 3,014 |
|
| - |
|
| 13 |
|
| - |
|
| - |
Floor plan |
| 2 |
|
| - |
|
| - |
|
| 2 |
|
| - |
|
| - |
|
| 3,029 |
|
| 3,014 |
|
| - |
|
| 15 |
|
| - |
|
| - |
Total |
| 5,562 |
|
| 3,919 |
|
| 337 |
|
| 1,306 |
|
| - |
|
| - |
48
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | ||||||||||||||||
| Risk Ratings | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Balance |
|
|
|
| Special |
|
|
|
|
|
|
|
| |||
| Outstanding |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Loss | ||||||
| (In thousands) | ||||||||||||||||
Retail - originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Traditional |
| 585,089 |
|
| 540,373 |
|
| - |
|
| 44,716 |
|
| - |
|
| - |
Non-traditional |
| 22,859 |
|
| 18,129 |
|
| - |
|
| 4,730 |
|
| - |
|
| - |
Loss mitigation program |
| 103,528 |
|
| 86,987 |
|
| - |
|
| 16,541 |
|
| - |
|
| - |
Home equity secured personal loans |
| 337 |
|
| 337 |
|
| - |
|
| - |
|
| - |
|
| - |
GNMA's buy-back option program |
| 9,681 |
|
| - |
|
| - |
|
| 9,681 |
|
| - |
|
| - |
|
| 721,494 |
|
| 645,826 |
|
| - |
|
| 75,668 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 26,358 |
|
| 25,833 |
|
| - |
|
| 525 |
|
| - |
|
| - |
Overdrafts |
| 207 |
|
| 174 |
|
| - |
|
| 33 |
|
| - |
|
| - |
Unsecured personal lines of credit |
| 2,404 |
|
| 2,372 |
|
| - |
|
| 32 |
|
| - |
|
| - |
Unsecured personal loans |
| 246,272 |
|
| 245,190 |
|
| - |
|
| 1,082 |
|
| - |
|
| - |
Cash collateral personal loans |
| 15,274 |
|
| 15,270 |
|
| - |
|
| 4 |
|
| - |
|
| - |
|
| 290,515 |
|
| 288,839 |
|
| - |
|
| 1,676 |
|
| - |
|
| - |
Auto and Leasing |
| 756,395 |
|
| 748,221 |
|
| - |
|
| 8,174 |
|
| - |
|
| - |
Total |
| 1,768,404 |
|
| 1,682,886 |
|
| - |
|
| 85,518 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail - acquired loans (under ASC 310-20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit cards |
| 30,093 |
|
| 29,386 |
|
| - |
|
| 707 |
|
| - |
|
| - |
Personal loans |
| 2,769 |
|
| 2,649 |
|
| - |
|
| 120 |
|
| - |
|
| - |
|
| 32,862 |
|
| 32,035 |
|
| - |
|
| 827 |
|
| - |
|
| - |
Auto |
| 53,026 |
|
| 52,510 |
|
| - |
|
| 516 |
|
| - |
|
| - |
Total |
| 85,888 |
|
| 84,545 |
|
| - |
|
| 1,343 |
|
| - |
|
| - |
| $ | 3,137,720 |
| $ | 2,928,876 |
| $ | 65,472 |
| $ | 143,372 |
| $ | - |
| $ | - |
4947
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 6 – ALLOWANCE FOR LOAN AND LEASE LOSSES
The composition of Oriental’s allowance for loan and lease losses at September 30, 20172018 and December 31, 20162017 was as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Allowance for loans and lease losses: |
|
|
|
|
|
|
|
|
|
|
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 22,308 |
| $ | 17,344 | $ | 19,545 |
| $ | 20,439 |
Commercial |
| 24,278 |
| 8,995 |
| 32,491 |
| 30,258 | ||
Consumer |
| 15,793 |
| 13,067 |
| 15,715 |
| 16,454 | ||
Auto and leasing |
| 25,162 |
| 19,463 |
| 27,485 |
| 25,567 | ||
Unallocated |
| - |
|
| 431 | |||||
Total allowance for originated and other loans and lease losses |
| 87,541 |
|
| 59,300 |
| 95,236 |
|
| 92,718 |
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
|
|
|
Commercial |
| 41 |
| 169 |
| 17 |
| 42 | ||
Consumer |
| 2,591 |
| 3,028 |
| 2,140 |
| 3,225 | ||
Auto |
| 731 |
|
| 1,103 |
| 193 |
|
| 595 |
|
| 3,363 |
|
| 4,300 |
| 2,350 |
|
| 3,862 |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 8,931 |
|
| 2,682 |
| 15,258 |
|
| 14,085 |
Commercial |
| 23,941 |
| 23,452 |
| 22,256 |
| 23,691 | ||
Consumer |
| 18 |
| 18 | ||||||
Auto |
| 7,238 |
|
| 4,922 |
| 6,343 |
|
| 7,961 |
|
| 40,110 |
|
| 31,056 |
| 43,875 |
|
| 45,755 |
Total allowance for acquired BBVAPR loans and lease losses |
| 43,473 |
|
| 35,356 |
| 46,225 |
|
| 49,617 |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 14,219 |
| 11,947 |
| 15,155 |
| 15,187 | ||
Commercial |
| 8,922 |
| 9,328 |
| 9,122 |
| 9,983 | ||
Consumer |
| 5 |
|
| 6 |
| 4 |
|
| 4 |
Total allowance for acquired Eurobank loan and lease losses |
| 23,146 |
|
| 21,281 |
| 24,281 |
|
| 25,174 |
Total allowance for loan and lease losses | $ | 154,160 |
| $ | 115,937 | $ | 165,742 |
| $ | 167,509 |
Oriental maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. Oriental’s allowance for loan and lease losses policy provides for a detailed quarterly analysis of probable losses. The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors. While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond Oriental’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition, and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition.
During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effect of the hurricanes on Oriental's loan portfolio is difficult to predict at this time,
5048
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
managementAs discussed in Note 2, during 2017, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.
TheFor the commercial portfolio, the framework for the analysis was based on our current ALLL methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment.
For commercial portfolios,As part of the process, Oriental contacted its clients to evaluate the impact of the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but still had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of repayment. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output.
During the fourth quarter of 2017, Oriental performed an update of the initial estimate, taking into consideration the most recent available information gathered through additional visits and interviews with clients and the economic environment in Puerto Rico.
For the retail portfolios, (residential mortgage, consumer and auto), managementauto, the assumptions established assumptionsin the initial estimate were based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (forfor all portfolios)portfolios and the location of the collateral (for residential loans). for mortgage loans. During the fourth quarter of 2017, Oriental performed additional procedures to evaluate the reasonability of the initial estimate based on the payment experience percentage of borrowers for which the deferral period expired. The analysis took into consideration historical payment behavior and loss experience of borrowers (PDs and LGDs) of each portfolio segment to develop a range of estimated potential losses. Management understands that this approach is reasonable given the lack of historical information related to the behavior of local borrowers in such an unprecedented event. The amount used in the analysis represents the average of potential outcomes of expected losses.
During the first quarter of 2018, Oriental updated the previous performed analysis to estimate probable losses related to the hurricanes. Analyses were based on the payment experience percentage of borrowers for which the deferral period expired in retail portfolios. For commercial portfolio, no changes in the level of impact assessed were identified based on communications with credit officers. During the second and third quarter of 2018, Oriental continued its monitoring process of the performance of those affected borrowers. As information became available, it was incorporated into the allowance framework.
Based on our assessment of the facts related to these hurricanes, we have increased our provisionAt September 30, 2018 and December 31, 2017, Oriental's allowance for loan and lease losses $27.0 million. The increase in the allowance correspondingincorporated all risks associated to our originated loan portfolio, was $16.8 million: $3.8 million in mortgage loans, $7.6 million in commercial loans, $800 thousand in consumer loans, and $4.6 million in auto loans. The increase in the allowance corresponding to our acquired loan portfolio was $10.2 million: $2.7 million in mortgage loans, $7.0 million in commercial loans, $100 thousand in consumer loans, and $400 thousand in auto loans.
The documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental will continue to assessincluding the impact to our customersof hurricanes Irma and our businesses as a result of the hurricanes and refine our estimates as more information becomes available.Maria.
5149
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Allowance for Originated and Other Loan and Lease Losses Held for Investment
The following tables presentspresent the activity in our allowance for loan and lease losses and the related recorded investment of the originated and other loans held for investment portfolio by segment for the periods indicated:
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2018 | |||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Total | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Allowance for loan and lease losses for originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 18,664 |
| $ | 17,279 |
| $ | 14,981 |
| $ | 18,742 |
| $ | - |
| $ | 69,666 | $ | 19,323 |
| $ | 31,480 |
| $ | 16,192 |
| $ | 27,223 |
| $ | 94,218 |
Charge-offs |
| (834) |
| (727) |
| (4,424) |
| (9,387) |
| - |
| (15,372) |
| (1,429) |
| (3,249) |
| (4,591) |
| (9,111) |
| (18,380) | |||||||||
Recoveries |
| 341 |
| 654 |
| 168 |
| 2,394 |
| - |
| 3,557 |
| 139 |
| 119 |
| 278 |
| 5,442 |
| 5,978 | |||||||||
Provision for originated and other loans and lease losses |
| 4,137 |
|
| 7,072 |
|
| 5,068 |
|
| 13,413 |
|
| - |
|
| 29,690 | ||||||||||||||
Provision for loan and lease losses |
| 1,512 |
|
| 4,141 |
|
| 3,836 |
|
| 3,931 |
|
| 13,420 | |||||||||||||||||
Balance at end of period | $ | 22,308 |
| $ | 24,278 |
| $ | 15,793 |
| $ | 25,162 |
| $ | - |
| $ | 87,541 | $ | 19,545 |
| $ | 32,491 |
| $ | 15,715 |
| $ | 27,485 |
| $ | 95,236 |
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2018 | |||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Total | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Allowance for loan and lease losses for originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 17,344 |
| $ | 8,995 |
| $ | 13,067 |
| $ | 19,463 |
| $ | 431 |
| $ | 59,300 | $ | 20,439 |
| $ | 30,258 |
| $ | 16,454 |
| $ | 25,567 |
| $ | 92,718 |
Charge-offs |
| (5,375) |
| (6,424) |
| (11,792) |
| (24,726) |
| - |
| (48,317) |
| (3,727) |
| (6,396) |
| (13,438) |
| (31,842) |
| (55,403) | |||||||||
Recoveries |
| 458 |
| 880 |
| 1,113 |
| 9,864 |
| - |
| 12,315 |
| 919 |
| 528 |
| 757 |
| 14,498 |
| 16,702 | |||||||||
Provision for originated and other loans and lease losses |
| 9,881 |
|
| 20,827 |
|
| 13,405 |
|
| 20,561 |
|
| (431) |
|
| 64,243 | ||||||||||||||
Provision for loan and lease losses |
| 1,914 |
|
| 8,101 |
|
| 11,942 |
|
| 19,262 |
|
| 41,219 | |||||||||||||||||
Balance at end of period | $ | 22,308 |
| $ | 24,278 |
| $ | 15,793 |
| $ | 25,162 |
| $ | - |
| $ | 87,541 | $ | 19,545 |
| $ | 32,491 |
| $ | 15,715 |
| $ | 27,485 |
| $ | 95,236 |
| September 30, 2017 | September 30, 2018 | |||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Total | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||||||
Allowance for loan and lease losses on originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Individually evaluated for impairment | $ | 9,524 |
| $ | 5,223 |
| $ | - |
| $ | - |
| $ | - |
| $ | 14,747 | $ | 10,620 |
| $ | 7,607 |
| $ | - |
| $ | - |
| $ | 18,227 |
Collectively evaluated for impairment |
| 12,784 |
|
| 19,055 |
|
| 15,793 |
|
| 25,162 |
|
| - |
|
| 72,794 |
| 8,925 |
|
| 24,884 |
|
| 15,715 |
|
| 27,485 |
|
| 77,009 |
Total ending allowance balance | $ | 22,308 |
| $ | 24,278 |
| $ | 15,793 |
| $ | 25,162 |
| $ | - |
| $ | 87,541 | $ | 19,545 |
| $ | 32,491 |
| $ | 15,715 |
| $ | 27,485 |
| $ | 95,236 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 86,511 |
| $ | 67,039 |
| $ | - |
| $ | - |
| $ | - |
| $ | 153,550 | $ | 85,119 |
| $ | 68,892 |
| $ | - |
| $ | - |
| $ | 154,011 |
Collectively evaluated for impairment |
| 607,965 |
|
| 1,178,672 |
|
| 316,357 |
|
| 831,437 |
|
| - |
|
| 2,934,431 |
| 582,105 |
|
| 1,471,135 |
|
| 345,399 |
|
| 1,084,912 |
|
| 3,483,551 |
Total ending loan balance | $ | 694,476 |
| $ | 1,245,711 |
| $ | 316,357 |
| $ | 831,437 |
| $ | - |
| $ | 3,087,981 | $ | 667,224 |
| $ | 1,540,027 |
| $ | 345,399 |
| $ | 1,084,912 |
| $ | 3,637,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5250
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | Quarter Ended September 30, 2017 | ||||||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan and lease losses for originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 18,537 |
| $ | 63,144 |
| $ | 11,771 |
| $ | 19,259 |
| $ | 101 |
| $ | 112,812 | $ | 18,664 |
| $ | 17,279 |
| $ | 14,981 |
| $ | 18,742 |
| $ | - |
| $ | 69,666 |
Charge-offs |
| (1,656) |
| (56,700) |
| (3,173) |
| (7,804) |
| - |
| (69,333) |
| (834) |
| (727) |
| (4,424) |
| (9,387) |
| - |
| (15,372) | ||||||||||
Recoveries |
| 21 |
| 93 |
| 120 |
| 3,747 |
| - |
| 3,981 |
| 341 |
| 654 |
| 168 |
| 2,394 |
| - |
| 3,557 | ||||||||||
Provision (recapture) for originated and other loan and lease losses |
| 1,625 |
|
| 5,770 |
|
| 3,571 |
|
| 3,800 |
|
| (58) |
|
| 14,708 |
| 4,137 |
|
| 7,072 |
|
| 5,068 |
|
| 13,413 |
|
| - |
|
| 29,690 |
Balance at end of period | $ | 18,527 |
| $ | 12,307 |
| $ | 12,289 |
| $ | 19,002 |
| $ | 43 |
| $ | 62,168 | $ | 22,308 |
| $ | 24,278 |
| $ | 15,793 |
| $ | 25,162 |
| $ | - |
| $ | 87,541 |
| Nine-Month Period Ended September 30, 2016 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan and lease losses for originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 18,352 |
| $ | 64,791 |
| $ | 11,197 |
| $ | 18,261 |
| $ | 25 |
| $ | 112,626 | $ | 17,344 |
| $ | 8,995 |
| $ | 13,067 |
| $ | 19,463 |
| $ | 431 |
| $ | 59,300 |
Charge-offs |
| (4,692) |
| (58,544) |
| (8,310) |
| (24,267) |
| - |
| (95,813) |
| (5,375) |
| (6,424) |
| (11,792) |
| (24,726) |
| - |
| (48,317) | ||||||||||
Recoveries |
| 204 |
| 407 |
| 355 |
| 9,969 |
| - |
| 10,935 |
| 458 |
| 880 |
| 1,113 |
| 9,864 |
| - |
| 12,315 | ||||||||||
Provision (recapture) for originated and other loan and lease losses |
| 4,663 |
|
| 5,653 |
|
| 9,047 |
|
| 15,039 |
|
| 18 |
|
| 34,420 |
| 9,881 |
|
| 20,827 |
|
| 13,405 |
|
| 20,561 |
|
| (431) |
|
| 64,243 |
Balance at end of period | $ | 18,527 |
| $ | 12,307 |
| $ | 12,289 |
| $ | 19,002 |
| $ | 43 |
| $ | 62,168 | $ | 22,308 |
| $ | 24,278 |
| $ | 15,793 |
| $ | 25,162 |
| $ | - |
| $ | 87,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | December 31, 2017 | ||||||||||||||||||||||||||||||||
| Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | Mortgage |
| Commercial |
| Consumer |
| Auto and Leasing |
| Unallocated |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Allowance for loan and lease losses on originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Individually evaluated for impairment | $ | 7,761 |
| $ | 1,626 |
| $ | - |
| $ | - |
| $ | - |
| $ | 9,387 | $ | 9,121 |
| $ | 10,573 |
| $ | - |
| $ | - |
| $ | - |
| $ | 19,694 |
Collectively evaluated for impairment |
| 9,583 |
|
| 7,369 |
|
| 13,067 |
|
| 19,463 |
|
| 431 |
|
| 49,913 |
| 11,318 |
|
| 19,685 |
|
| 16,454 |
|
| 25,567 |
|
| - |
|
| 73,024 |
Total ending allowance balance | $ | 17,344 |
| $ | 8,995 |
| $ | 13,067 |
| $ | 19,463 |
| $ | 431 |
| $ | 59,300 | $ | 20,439 |
| $ | 30,258 |
| $ | 16,454 |
| $ | 25,567 |
| $ | - |
| $ | 92,718 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 91,650 |
| $ | 53,139 |
| $ | - |
| $ | - |
| $ | - |
| $ | 144,789 | $ | 85,403 |
| $ | 71,538 |
| $ | - |
| $ | - |
| $ | - |
| $ | 156,941 |
Collectively evaluated for impairment |
| 629,844 |
|
| 1,224,727 |
|
| 290,515 |
|
| 756,395 |
|
| - |
|
| 2,901,481 |
| 598,204 |
|
| 1,235,723 |
|
| 330,039 |
|
| 883,985 |
|
| - |
|
| 3,047,951 |
Total ending loan balance | $ | 721,494 |
| $ | 1,277,866 |
| $ | 290,515 |
| $ | 756,395 |
| $ | - |
| $ | 3,046,270 | $ | 683,607 |
| $ | 1,307,261 |
| $ | 330,039 |
| $ | 883,985 |
| $ | - |
| $ | 3,204,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for BBVAPR Acquired Loan Losses
Loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)
The following tables present the activity in our allowance for loan losses and related recorded investment of the associated loans in our BBVAPR acquired loan portfolio accounted for under ASC 310-20, for the periods indicated:indicated:
51
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 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 |
Provision (recapture) for acquired BBVAPR 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 |
| 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 |
Provision (recapture) for acquired BBVAPR 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 |
| 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: |
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 4 |
| $ | - |
| $ | - |
| $ | 4 |
Collectively evaluated for impairment |
| 13 |
|
| 2,140 |
|
| 193 |
|
| 2,346 |
Total ending allowance balance | $ | 17 |
| $ | 2,140 |
| $ | 193 |
| $ | 2,350 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 747 |
| $ | - |
| $ | - |
| $ | 747 |
Collectively evaluated for impairment |
| 2,031 |
|
| 24,914 |
|
| 7,494 |
|
| 34,439 |
Total ending loan balance | $ | 2,778 |
| $ | 24,914 |
| $ | 7,494 |
| $ | 35,186 |
|
|
|
|
|
|
|
|
|
|
|
|
52
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2017 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 41 |
| $ | 2,623 |
| $ | 684 |
| $ | 3,348 |
Charge-offs |
| - |
|
| (711) |
|
| (222) |
|
| (933) |
Recoveries |
| 1 |
|
| 33 |
|
| 202 |
|
| 236 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| (1) |
|
| 646 |
|
| 67 |
|
| 712 |
Balance at end of period | $ | 41 |
| $ | 2,591 |
| $ | 731 |
| $ | 3,363 |
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ | 169 |
| $ | 3,028 |
| $ | 1,103 |
| $ | 4,300 |
Charge-offs |
| (132) |
|
| (2,367) |
|
| (705) |
|
| (3,204) |
Recoveries |
| 6 |
|
| 392 |
|
| 1,251 |
|
| 1,649 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| (2) |
|
| 1,538 |
|
| (918) |
|
| 618 |
Balance at end of period | $ | 41 |
| $ | 2,591 |
| $ | 731 |
| $ | 3,363 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 20 |
| $ | - |
| $ | - |
| $ | 20 |
Collectively evaluated for impairment |
| 22 |
|
| 3,225 |
|
| 595 |
|
| 3,842 |
Total ending allowance balance | $ | 42 |
| $ | 3,225 |
| $ | 595 |
| $ | 3,862 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 747 |
| $ | - |
| $ | - |
| $ | 747 |
Collectively evaluated for impairment |
| 3,633 |
|
| 28,915 |
|
| 21,969 |
|
| 54,517 |
Total ending loan balance | $ | 4,380 |
| $ | 28,915 |
| $ | 21,969 |
| $ | 55,264 |
53
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2017 | |||||||||||
| Commercial |
| Consumer |
| Auto |
|
| Total | ||||
| (In thousands) | |||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 41 |
| $ | 2,623 |
| $ | 684 |
|
| $ | 3,348 |
Charge-offs |
| - |
|
| (711) |
|
| (222) |
|
|
| (933) |
Recoveries |
| 1 |
|
| 33 |
|
| 202 |
|
|
| 236 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| (1) |
|
| 646 |
|
| 67 |
|
|
| 712 |
Balance at end of period | $ | 41 |
| $ | 2,591 |
| $ | 731 |
|
| $ | 3,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ | 169 |
| $ | 3,028 |
| $ | 1,103 |
| $ | 4,300 |
Charge-offs |
| (132) |
|
| (2,367) |
|
| (705) |
|
| (3,204) |
Recoveries |
| 6 |
|
| 392 |
|
| 1,251 |
|
| 1,649 |
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |
| (2) |
|
| 1,538 |
|
| (918) |
|
| 618 |
Balance at end of year | $ | 41 |
| $ | 2,591 |
| $ | 731 |
| $ | 3,363 |
54
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2017 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 12 |
| $ | - |
| $ | - |
| $ | 12 |
Collectively evaluated for impairment |
| 29 |
|
| 2,591 |
|
| 731 |
|
| 3,351 |
Total ending allowance balance | $ | 41 |
| $ | 2,591 |
| $ | 731 |
| $ | 3,363 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 748 |
| $ | - |
| $ | - |
| $ | 748 |
Collectively evaluated for impairment |
| 3,864 |
|
| 29,464 |
|
| 26,562 |
|
| 59,890 |
Total ending loan balance | $ | 4,612 |
| $ | 29,464 |
| $ | 26,562 |
| $ | 60,638 |
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, 2016 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 21 |
| $ | 3,002 |
| $ | 1,464 |
| $ | 4,487 |
Charge-offs |
| (2) |
|
| (889) |
|
| (475) |
|
| (1,366) |
Recoveries |
| 16 |
|
| 67 |
|
| 461 |
|
| 544 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| (17) |
|
| 766 |
|
| (201) |
|
| 548 |
Balance at end of period | $ | 18 |
| $ | 2,946 |
| $ | 1,249 |
| $ | 4,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Nine-Month Period Ended September 30, 2016 | ||||||||||
| Commercial |
| Consumer |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ | 26 |
| $ | 3,429 |
| $ | 2,087 |
| $ | 5,542 |
Charge-offs |
| (21) |
|
| (2,714) |
|
| (1,783) |
|
| (4,518) |
Recoveries |
| 56 |
|
| 236 |
|
| 1,505 |
|
| 1,797 |
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |
| (43) |
|
| 1,995 |
|
| (560) |
|
| 1,392 |
Balance at end of period | $ | 18 |
| $ | 2,946 |
| $ | 1,249 |
| $ | 4,213 |
| December 31, 2016 | ||||||||||
| 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 | $ | 141 |
| $ | - |
| $ | - |
| $ | 141 |
Collectively evaluated for impairment |
| 28 |
|
| 3,028 |
|
| 1,103 |
|
| 4,159 |
Total ending allowance balance | $ | 169 |
| $ | 3,028 |
| $ | 1,103 |
| $ | 4,300 |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment | $ | 1,150 |
| $ | - |
| $ | - |
| $ | 1,150 |
Collectively evaluated for impairment |
| 4,412 |
|
| 32,862 |
|
| 53,026 |
|
| 90,300 |
Total ending loan balance | $ | 5,562 |
| $ | 32,862 |
| $ | 53,026 |
| $ | 91,450 |
Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)
For loans accounted for under ASC 310- 30,310-30, as part of the evaluation of actual versus expected cash flows, Oriental assesses on a quarterly basis the credit quality of these loans based on delinquency, severity factors and risk ratings, among other assumptions. Migration and credit quality trends are assessed at the pool level, by comparing information from the latest evaluation period through the end of the reporting period.
The following tables present the activity in our allowance for loan losses and related recorded investment of the acquired BBVAPR loan portfolio accounted for under ASC 310-30 for the periods indicated:
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period 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 | $ | 14,085 |
| $ | 23,691 |
| $ | 18 | $ | 7,961 |
| 45,755 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 1,296 |
|
| 2,119 |
|
| - |
| (887) |
| 2,528 |
Allowance de-recogntion |
| (123) |
|
| (3,554) |
|
| - |
| (731) |
| (4,408) |
Balance at end of period | $ | 15,258 |
| $ | 22,256 |
| $ | 18 | $ | 6,343 |
| 43,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
54
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2017 | ||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 4,141 |
| $ | 25,614 |
| $ | 7,739 |
| $ | 37,494 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 4,790 |
|
| 6,810 |
|
| (501) |
|
| 11,099 |
Allowance de-recognition |
| - |
|
| (8,483) |
|
| - |
|
| (8,483) |
Balance at end of period | $ | 8,931 |
| $ | 23,941 |
| $ | 7,238 |
| $ | 40,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | ||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 2,682 |
| $ | 23,452 |
| $ | 4,922 |
| $ | 31,056 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 6,345 |
|
| 9,768 |
|
| 2,685 |
|
| 18,798 |
Allowance de-recogntion |
| (96) |
|
| (9,279) |
|
| (369) |
|
| (9,744) |
Balance at end of period | $ | 8,931 |
| $ | 23,941 |
| $ | 7,238 |
| $ | 40,110 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Acquired Eurobank Loan Losses
The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters and nine-month periods ended September 30, 2018 and 2017 were as follows:
55
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| 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 for 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 acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 15,187 |
| $ | 9,983 |
| $ | 4 |
| $ | 25,174 |
Provision for 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 |
56
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2017 | ||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Allowance for loan and lease losses for acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at beginning of period | $ | 4,141 |
| $ | 25,614 |
| $ | 7,739 |
| $ | 37,494 | $ | 13,651 |
| $ | 8,131 |
| $ | 4 |
| $ | 21,786 |
Provision for BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 4,790 |
| 6,810 |
| - 501 |
| 11,099 | ||||||||||||||
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 1,139 |
|
| 1,402 |
|
| - |
| 2,541 | ||||||||||||
Allowance de-recognition |
| - |
|
| (8,483) |
|
| - |
|
| (8,483) |
| (571) |
|
| (611) |
|
| - |
|
| (1,182) |
Balance at end of period | $ | 8,931 |
| $ | 23,941 |
| $ | 7,238 |
| $ | 40,110 | $ | 14,219 |
| $ | 8,922 |
| $ | 4 |
| $ | 23,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Allowance for loan and lease losses for Eurobank loans: |
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at beginning of period | $ | 2,682 |
| $ | 23,452 |
| $ | 4,922 |
| $ | 31,056 | $ | 11,947 |
| $ | 9,328 |
| $ | 6 |
| $ | 21,281 |
Provision (recapture) for BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 6,345 |
|
| 9,768 |
|
| 2,685 |
| 18,798 | ||||||||||||
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 4,011 |
|
| 562 |
| - |
| 4,573 | |||||||||||||
Allowance de-recognition |
| (96) |
|
| (9,279) |
|
| (369) |
|
| (9,744) |
| (1,739) |
|
| (968) |
|
| (2) |
|
| (2,709) |
Balance at end of period | $ | 8,931 |
| $ | 23,941 |
| $ | 7,238 |
| $ | 40,110 | $ | 14,219 |
| $ | 8,922 |
| $ | 4 |
| $ | 23,145 |
|
|
|
|
|
|
|
|
|
|
|
|
57
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | ||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 1,585 |
| $ | 15,863 |
| $ | 5,353 |
| $ | 22,801 |
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 1,079 |
|
| 6,324 |
|
| - |
|
| 7,403 |
Allowance de-recognition |
| - |
|
| (189) |
|
| (196) |
|
| (385) |
Balance at end of period | $ | 2,664 |
| $ | 21,998 |
| $ | 5,157 |
| $ | 29,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2016 | ||||||||||
| Mortgage |
| Commercial |
| Auto |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 1,678 |
| $ | 21,245 |
| $ | 2,862 |
| $ | 25,785 |
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |
| 1,000 |
|
| 9,552 |
|
| 2,693 |
|
| 13,245 |
Loan pools fully charged-off |
| (14) |
|
| (66) |
|
| (202) |
|
| (282) |
Allowance de-recogntion |
| - |
|
| (8,733) |
|
| (196) |
|
| (8,929) |
Balance at end of period | $ | 2,664 |
| $ | 21,998 |
| $ | 5,157 |
| $ | 29,819 |
|
|
|
|
|
|
|
|
|
|
|
|
58
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 September 30, 2017 and 2016 were as follows:
| Quarter Ended September 30, 2017 | ||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 13,651 |
| $ | 8,131 |
| $ | 5 |
| $ | 21,787 |
Provision for (recapture) acquired Eurobank loans and lease losses, net |
| 1,139 |
|
| 1,402 |
|
| - |
|
| 2,541 |
Allowance de-recognition |
| (571) |
|
| (611) |
|
| - |
|
| (1,182) |
Balance at end of period | $ | 14,219 |
| $ | 8,922 |
| $ | 5 |
| $ | 23,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | ||||||||||
| Loans Secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 11,947 |
| $ | 9,328 |
| $ | 6 |
| $ | 21,281 |
Provision for (recapture) acquired Eurobank loans and lease losses, net |
| 4,011 |
| $ | 562 |
|
| - |
|
| 4,573 |
Allowance de-recognition |
| (1,739) |
|
| (968) |
|
| (1) |
|
| (2,708) |
Balance at end of period | $ | 14,219 |
| $ | 8,922 |
| $ | 5 |
| $ | 23,146 |
|
|
|
|
|
|
|
|
|
|
|
|
59
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | ||||||||||
| Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 11,016 |
| $ | 11,096 |
| $ | 4 |
| $ | 22,116 |
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 893 |
|
| (74) |
|
| - |
|
| 819 |
Loan pools fully charged-off |
| 818 |
|
| - |
|
| - |
|
| 818 |
Allowance de-recognition |
| (459) |
|
| (478) |
|
| (4) |
|
| (941) |
Balance at end of period | $ | 12,268 |
| $ | 10,544 |
| $ | - |
| $ | 22,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2016 | ||||||||||
| Loans secured by 1-4 Family Residential Properties |
| Commercial |
| Consumer |
| Total | ||||
| (In thousands) | ||||||||||
Allowance for loan and lease losses for Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 22,570 |
| $ | 67,365 |
| $ | 243 |
| $ | 90,178 |
Provision for (recapture) acquired Eurobank loan and lease losses, net |
| 1,077 |
|
| 1,585 |
|
| (7) |
|
| 2,655 |
FDIC shared-loss portion of provision for covered loan and lease losses, net |
| 3,213 |
|
| - |
|
| - |
|
| 3,213 |
Loan pools fully charged-off |
| - |
|
| (134) |
|
| - |
|
| (134) |
Allowance de-recognition |
| (14,592) |
|
| (58,272) |
|
| (236) |
|
| (73,100) |
Balance at end of period | $ | 12,268 |
| $ | 10,544 |
| $ | - |
| $ | 22,812 |
|
|
|
|
|
|
|
|
|
|
|
|
60
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 7- FDIC INDEMNIFICATION ASSET, TRUE-UP PAYMENT OBLIGATION, AND FDIC SHARED-LOSS EXPENSEAGREEMENTS
On February 6, 2017, the Bank and the FDIC agreed to terminate the single family and commercial shared-loss agreements related to the FDIC assisted acquisition of Eurobank on April 30, 2010. As part of the loss share termination transaction, the Bank made a payment of $10.1 $10.1 million to the FDIC and recorded a net benefit of $1.4 million. Such termination payment took into account the anticipated reimbursements over the life of the shared-loss agreements and the true-up payment liability of the Bank anticipated at the end of the ten yearten-year term of the single family shared-loss agreement. All rights and obligations of the parties under the shared-loss agreements terminated as of the closing date of the agreement.
Pursuant to the terms of the shared-loss agreements, the FDIC would reimburse the Bank for 80% of all qualifying losses with respect to assets covered by such agreements, and the Bank would reimburse the FDIC for 80% of qualifying recoveries with respect to losses for which the FDIC reimbursed the Bank. The single family shared-loss agreement provided for FDIC loss sharing and the Bank’s reimbursement to the FDIC to last for ten years, and the commercial shared-loss agreement provided for FDIC loss sharing and the Bank’s reimbursement to the FDIC to last for five years, with additional recovery sharing for three years thereafter.
The following table presents the activity in the FDIC indemnification asset and true-up payment obligation for the quarters and nine-month periods ended September 30, 2017 and 2016:
| Quarter Ended September 30, | Nine-Month Period Ended September 30, | |||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands) | ||||||||||
FDIC indemnification asset: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | - |
| $ | 18,426 |
| $ | 14,411 |
| $ | 22,599 |
Shared-loss agreements reimbursements from the FDIC |
| - |
|
| (87) |
|
| - |
|
| (824) |
Increase in expected credit losses to be covered under shared-loss agreements, net |
| - |
|
| 818 |
|
| - |
|
| 3,213 |
FDIC indemnification asset benefit (expense) |
| - |
|
| (1,910) |
|
| 1,403 |
|
| (6,179) |
Net expenses incurred under shared-loss agreements |
| - |
|
| (577) |
|
| - |
|
| (2,139) |
Shared-loss termination settlement |
| - |
|
| - |
|
| (15,814) |
|
| - |
Balance at end of period | $ | - |
| $ | 16,670 |
| $ | - |
| $ | 16,670 |
|
|
|
|
|
|
|
|
|
|
|
|
True-up payment obligation: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | - |
| $ | 25,771 |
| $ | 26,786 |
| $ | 24,658 |
Change in true-up payment obligation |
| - |
|
| 508 |
|
| - |
|
| 1,621 |
Shared-loss termination settlement |
| - |
|
| - |
|
| (26,786) |
|
| - |
Balance at end of period | $ | - |
| $ | 26,279 |
| $ | - |
| $ | 26,279 |
Oriental recognized an FDIC shared-loss (benefit) expense, net in the consolidated statements of operations, which consists of the following, for the quarters and nine-month periods ended September 30, 2017 and 2016:
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
| (In thousands) | ||||||||||
FDIC indemnification asset expense (benefit) |
| $ | - |
| $ | 1,910 |
| $ | (1,403) |
| $ | 6,179 |
Change in true-up payment obligation |
|
| - |
|
| 508 |
|
| - |
|
| 1,621 |
Reimbursement to FDIC for recoveries |
|
| - |
|
| 878 |
|
| - |
|
| 2,945 |
Total FDIC shared-loss expense (benefit), net |
| $ | - |
| $ | 3,296 |
| $ | (1,403) |
| $ | 10,745 |
6157
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 8 — FORECLOSED REAL ESTATE
The following tables present the activity related to foreclosed real estate for the quarters and nine monthnine-months periods ended September 30, 20172018 and 20162017:
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2018 | ||||||||||||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 15,842 |
| $ | 21,671 |
| $ | 12,710 |
| $ | 50,223 | $ | 12,186 |
| $ | 17,492 |
| $ | 10,873 |
| $ | 40,551 |
Decline in value |
| (592) |
| (680) |
| (340) |
| (1,612) |
| (359) |
| (244) |
| (302) |
| (905) | ||||||
Additions |
| 1,482 |
| 2,122 |
| 665 |
| 4,269 |
| 1,547 |
| 2,476 |
| 928 |
| 4,951 | ||||||
Sales |
| (1,996) |
|
| (2,410) |
| (1,108) |
| (5,514) |
| (3,080) |
|
| (2,680) |
|
| (969) |
|
| (6,729) | ||
Other adjustments |
| (59) |
|
| (32) |
|
| - |
|
| (91) | |||||||||||
Balance at end of period | $ | 14,677 |
| $ | 20,671 |
| $ | 11,927 |
| $ | 47,275 | $ | 10,294 |
| $ | 17,044 |
| $ | 10,530 |
| $ | 37,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
| Nine-Month Period Ended September 30, 2017 | Quarter Ended September 30, 2017 | ||||||||||||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of period | $ | 12,389 |
| $ | 21,379 |
| $ | 13,752 |
| $ | 47,520 | $ | 15,842 |
| $ | 21,671 |
| $ | 12,710 |
| $ | 50,223 |
Decline in value |
| (1,672) |
| (2,309) |
| (1,610) |
| (5,591) |
| (592) |
| (680) |
| (340) |
| (1,612) | ||||||
Additions |
| 9,338 |
| 9,210 |
| 2,597 |
| 21,145 |
| 1,482 |
| 2,122 |
| 665 |
| 4,269 | ||||||
Sales |
| (5,235) |
|
| (7,464) |
| (2,812) |
| (15,511) |
| (1,996) |
|
| (2,410) |
| (1,108) |
| (5,514) | ||||
Other adjustments |
| (143) |
|
| (145) |
|
| - |
|
| (288) |
| (59) |
|
| (32) |
|
| - |
|
| (91) |
Balance at end of period | $ | 14,677 |
| $ | 20,671 |
| $ | 11,927 |
| $ | 47,275 | $ | 14,677 |
| $ | 20,671 |
| $ | 11,927 |
| $ | 47,275 |
|
|
|
|
|
|
|
|
|
|
|
|
6258
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September 30, 2016 | Nine-Month Period Ended September 30, 2018 | ||||||||||||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 10,401 |
| $ | 23,894 |
| $ | 16,925 |
| $ | 51,220 | $ | 14,283 |
| $ | 18,347 |
| $ | 11,544 |
| $ | 44,174 |
Decline in value |
| (794) |
| (1,662) |
| (1,036) |
| (3,492) |
| (1,017) |
| (1,758) |
| (1,054) |
| (3,829) | ||||||
Additions |
| 1,866 |
| 1,800 |
| 692 |
| 4,358 |
| 4,816 |
| 7,401 |
| 2,868 |
| 15,085 | ||||||
Sales |
| (1,717) |
|
| (3,191) |
| (1,440) |
| (6,348) |
| (7,788) |
|
| (6,946) |
| (2,828) |
| (17,562) | ||||
Other adjustments |
| 2 |
|
| - |
|
| - |
|
| 2 | |||||||||||
Balance at end of period | $ | 9,758 |
| $ | 20,841 |
| $ | 15,141 |
| $ | 45,740 | $ | 10,294 |
| $ | 17,044 |
| $ | 10,530 |
| $ | 37,868 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| Nine-Month Period Ended September 30, 2016 | Nine-Month Period Ended September 30, 2017 | ||||||||||||||||||||
| Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | Originated and other loans and leases held for investment |
| Acquired BBVAPR loans |
| Acquired Eurobank loans |
| Total | ||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Balance at beginning of period | $ | 9,738 |
| $ | 26,757 |
| $ | 21,681 |
| $ | 58,176 | $ | 12,389 |
| $ | 21,379 |
| $ | 13,752 |
| $ | 47,520 |
Decline in value |
| (1,442) |
| (5,566) |
| (4,518) |
| (11,526) |
| (1,672) |
| (2,309) |
| (1,610) |
| (5,591) | ||||||
Additions |
| 6,295 |
| 4,855 |
| 2,399 |
| 13,549 |
| 9,338 |
| 9,210 |
| 2,597 |
| 21,145 | ||||||
Sales |
| (4,836) |
|
| (5,205) |
| (4,421) |
| (14,462) |
| (5,235) |
|
| (7,464) |
| (2,812) |
| (15,511) | ||||
Other adjustments |
| 3 |
|
| - |
|
| - |
|
| 3 |
| (143) |
|
| (145) |
|
| - |
|
| (288) |
Balance at end of period | $ | 9,758 |
| $ | 20,841 |
| $ | 15,141 |
| $ | 45,740 | $ | 14,677 |
| $ | 20,671 |
| $ | 11,927 |
| $ | 47,275 |
During the third quarter of 2017,After hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Management is evaluatingin September 2017, management evaluated the potential impact these two events brought to Oriental’s foreclosed real estate, considering the related underlying insurance coverage. TakingOriental has performed property inspections and taking into consideration all available information, and the status of the analysis to date, we believed the fair value of these properties willwas not be materially impacted.
The following table presents Oriental’s derivative assets and liabilities at September 30, 2017 and December 31, 2016:
63
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
| (In thousands) | ||||
Derivative assets: |
|
|
|
|
|
Interest rate swaps not designated as hedges | $ | 757 |
| $ | 1,187 |
Interest rate caps |
| 52 |
|
| 143 |
| $ | 809 |
| $ | 1,330 |
Derivative liabilities: |
|
|
|
|
|
Interest rate swaps designated as cash flow hedges |
| 868 |
|
| 1,004 |
Interest rate swaps not designated as hedges |
| 757 |
|
| 1,187 |
Interest rate caps |
| 52 |
|
| 139 |
Other |
| - |
|
| 107 |
| $ | 1,677 |
| $ | 2,437 |
6459
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents Oriental’s derivative assets and liabilities at September 30, 2018 and December 31, 2017:
| September 30, |
| December 31, | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Derivative assets: |
|
|
|
|
|
Interest rate swaps designated as cash flow hedges | $ | 643 |
| $ | - |
Interest rate swaps not designated as hedges |
| 227 |
|
| 618 |
Interest rate caps |
| 395 |
|
| 153 |
| $ | 1,265 |
| $ | 771 |
Derivative liabilities: |
|
|
|
|
|
Interest rate swaps designated as cash flow hedges |
| - |
|
| 510 |
Interest rate swaps not designated as hedges |
| 227 |
|
| 618 |
Interest rate caps |
| 395 |
|
| 153 |
| $ | 622 |
| $ | 1,281 |
Oriental enters into interest rate swap contracts to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in a predetermined variable index rate. The interest rate swaps effectively fix Oriental’s interest payments on an amount of forecasted interest expense attributable to the variable index rate corresponding to the swap notional stated rate. These swaps are designated as cash flow hedges for the forecasted wholesale borrowing transactions and are properly documented as such, andsuch; therefore, qualify for cash flow hedge accounting. Any gain or loss associated with the effective portion of the cash flow hedges is recognized in other comprehensive income (loss) and is subsequently reclassified into operations in the period during which the hedged forecasted transactions affect earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income to the extent there is no significant ineffectiveness in the cash flow hedging relationships. Currently, Oriental does not expect to reclassify any amount included in other comprehensive income (loss) related to these interest rate swaps to operations in the next twelve months.
The following table shows a summary of these swaps and their terms at September 30, 2017:2018:
|
| 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 |
| $ | 35,487 |
| 2.4210% |
| 1-Month LIBOR |
| 07/03/13 |
| 07/03/13 |
| 08/01/23 |
| $ | 33,964 |
| 2.4210% |
| 1-Month LIBOR |
| 07/03/13 |
| 07/03/13 |
| 08/01/23 |
|
| $ | 35,487 |
|
|
|
|
|
|
|
|
|
|
| $ | 33,964 |
|
|
|
|
|
|
|
|
|
|
An accumulated unrealized lossgain of $868643 thousand and $1.0a loss of $510 million wasthousand were recognized in accumulated other comprehensive income (loss) related to the valuation of these swaps at September 30, 20172018 and December 31, 2016,2017, respectively, and the related asset or liability is being reflected in the consolidated statements of financial condition.
At September 30, 20172018 and December 31, 2016,2017, interest rate swaps not designated as hedging instruments that were offered to clients represented an asset of $757$227 thousand and $1.2 million,$618 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial position. The credit risk to these clients stemming from these derivatives, if any, is not material. At September 30, 20172018 and December 31, 2016,2017, interest rate swaps not designated as hedging instruments that are the mirror-images of the derivatives offered to clients represented a liability of $757$227 thousand and $1.2 million,$618 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition.
The following table shows a summary of these interest rate swaps not designated as hedging instruments and their terms at September 30, 2017:
|
| Notional |
| Fixed |
| Variable |
| Settlement |
| Maturity | |
Type |
| Amount |
| Rate |
| Rate Index |
| Date |
| Date | |
|
| (In thousands) |
|
|
|
|
|
|
|
| |
Interest Rate Swaps - Derivatives Offered to Clients |
| $ | 12,500 |
| 5.5050% |
| 1-Month LIBOR |
| 04/11/09 |
| 04/11/19 |
|
| $ | 12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps - Mirror Image Derivatives |
| $ | 12,500 |
| 5.5050% |
| 1-Month LIBOR |
| 04/11/09 |
| 04/11/19 |
|
| $ | 12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6560
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table shows a summary of these interest rate swaps not designated as hedging instruments and their terms at September 30, 2018:
|
| Notional |
| Fixed |
| Variable |
| Settlement |
| Maturity | |
Type |
| Amount |
| Rate |
| Rate Index |
| Date |
| Date | |
|
| (In thousands) |
|
|
|
|
|
|
|
| |
Interest Rate Swaps - Derivatives Offered to Clients |
| $ | 12,500 |
| 5.5050% |
| 1-Month LIBOR |
| 04/11/09 |
| 04/11/19 |
|
| $ | 12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps - Mirror Image Derivatives |
| $ | 12,500 |
| 5.5050% |
| 1-Month LIBOR |
| 04/11/09 |
| 04/11/19 |
|
| $ | 12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oriental has entered into interest rate cap transactions with various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. In these cases, Oriental simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting, and therefore, they are marked to market through earnings. As of September 30, 20172018 and December 31, 20162017, the outstanding total notional amount of interest rate caps was $135.3151.4 million and $136.1152.6 million, respectively. At September 30, 20172018 and December 31, 2016,2017, the interest rate caps sold to clients represented a liability of $52$395 thousand and $139$153 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition. At September 30, 20172018 and December 31, 2016,2017, the interest rate caps purchased as mirror-images represented an asset of $52$395 thousand and $143$153 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial condition.
NOTE 10 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Accrued interest receivable at September 30, 20172018 and December 31, 20162017 consists of the following:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Loans, excluding acquired loans | $ | 19,768 |
| $ | 16,706 | $ | 29,671 |
| $ | 46,936 |
Investments |
| 2,968 |
|
| 3,521 |
| 3,781 |
|
| 3,033 |
| $ | 22,736 |
| $ | 20,227 | $ | 33,452 |
| $ | 49,969 |
|
|
|
|
|
|
|
|
|
|
|
61
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accrued interest receivable at December 31, 2017, included $39.7 million, resulting from the loan payment moratorium. Accrued interest receivable resulting from the loan payment moratorium has been decreasing, as most moratoriums have expired. Some of these accrued interests are payable at the end of the loan term.
OtherOther assets at September 30, 20172018 and December 31, 20162017 consist of the following:following:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Prepaid expenses | $ | 13,070 |
| $ | 17,096 | $ | 12,762 |
| $ | 9,200 |
Other repossessed assets |
| 3,829 |
| 3,224 |
| 4,146 |
| 3,548 | ||
Core deposit and customer relationship intangibles |
| 5,055 |
| 6,160 |
| 3,697 |
| 4,687 | ||
Mortgage tax credits |
| 4,277 |
| 6,277 | ||||||
Tax credits |
| 2,277 |
| 4,277 | ||||||
Investment in Statutory Trust |
| 1,083 |
| 1,083 |
| 1,083 |
| 1,083 | ||
Accounts receivable and other assets |
| 37,443 |
|
| 46,525 |
| 37,951 |
|
| 41,898 |
| $ | 64,757 |
| $ | 80,365 | $ | 61,916 |
| $ | 64,693 |
Prepaid expenses amounting to $13.1$12.8 million and $17.1$9.2 million at September 30, 20172018 and December 31, 2016,2017, respectively, include prepaid municipal, state accident insurance fund, property and income taxes aggregating to $7.57.3 million and $12.5$5.7 million, respectively.
In connection with the FDIC-assisted acquisition and the BBVAPR Acquisition, Oriental recorded a core deposit intangible representing the value of checking and savings deposits acquired. At September 30, 20172018 and December 31, 20162017 this core deposit intangible amounted to $3.6$2.7 million and $4.3$3.3 million, respectively. In addition, Oriental recorded a customer relationship intangible representing the value of customer relationships acquired with the acquisition of the securities broker-dealer and insurance agency in the BBVAPR Acquisition. At September 30, 20172018 and December 31, 20162017, this customer relationship intangible amounted to $1.5$1.0 million and $1.9$1.4 million, respectively.
Other repossessed assets totaled $3.8$4.1 million and $3.2$3.5 million at September 30, 20172018 and December 31, 2016,2017, respectively, includethat consist mainly of repossessed automobiles amounting to $3.6 million and $3.0 million, respectively,, which are recorded at their net realizable value.
66
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At September 30, 20172018 and December 31, 2016,2017, tax credits for Oriental totaled $4.3$2.3 million and $6.3$4.3 million, respectively. These tax credits do not have an expiration date.
NOTE 11— DEPOSITS AND RELATED INTEREST
Total deposits, including related accrued interest payable, as of September 30, 20172018 and December 31, 20162017 consist of the following:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Non-interest bearing demand deposits | $ | 900,063 |
| $ | 848,502 | $ | 1,107,567 |
| $ | 969,525 |
Interest-bearing savings and demand deposits |
| 2,337,174 |
| 2,219,452 |
| 2,412,690 |
| 2,274,116 | ||
Individual retirement accounts |
| 235,265 |
| 265,754 |
| 204,715 |
| 231,376 | ||
Retail certificates of deposit |
| 596,854 |
| 563,965 |
| 610,118 |
| 595,983 | ||
Institutional certificates of deposit |
| 221,448 |
|
| 190,419 |
| 223,025 |
|
| 209,951 |
Total core deposits |
| 4,290,804 |
|
| 4,088,092 |
| 4,558,115 |
|
| 4,280,951 |
Brokered deposits |
| 535,600 |
|
| 576,395 |
| 530,878 |
|
| 518,531 |
Total deposits | $ | 4,826,404 |
| $ | 4,664,487 | $ | 5,088,993 |
| $ | 4,799,482 |
|
|
|
|
|
|
|
|
|
|
|
Brokered deposits include $487.0 million in certificates of deposits and $48.6 million in money market accounts at September 30, 2017, and $508.4 million in certificates of deposits and $68.0 million in money market accounts at December 31, 2016.
The weighted average interest rate of Oriental’s deposits was 0.65% and 0.62% at September 30, 2017 and December 31, 2016 respectively. Interest expense for the quarters and nine-month periods ended September 30, 2017 and 2016 was as follows:
| Quarter Ended September 30, | Nine-Month Period Ended September 30, | ||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
| (In thousands) |
|
|
|
|
|
| |||||
Demand and savings deposits | $ | 2,715 |
| $ | 3,035 |
| $ | 8,563 |
| $ | 9,061 |
|
Certificates of deposit |
| 4,886 |
|
| 4,296 |
|
| 14,043 |
|
| 12,761 |
|
| $ | 7,601 |
| $ | 7,331 |
| $ | 22,606 |
| $ | 21,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, demand and interest-bearing deposits and certificates of deposit included uncollateralized deposits of Puerto Rico Cash & Money Market Fund, Inc. ("the Fund”), which amounted to $15.3 million, with a weighted average rate of 0.77%. On April 3, 2017, the Fund was liquidated in anticipation of its dissolution.
At September 30, 2017 and December 31, 2016, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $364.7 million and $344.0 million, respectively. Such amounts include public funds time deposits from various Puerto Rico government municipalities, agencies, and corporations of $13.3 million and $2.1 million at a weighted average rate of 0.67% and 0.50% at September 30, 2017 and December 31, 2016, respectively.
At September 30, 2017 and December 31, 2016, total public fund deposits from various Puerto Rico government municipalities, agencies, and corporations amounted to $135.8 million and $170.7 million, respectively. These public funds were collateralized with commercial loans amounting to $174.3 million and $209.2 million at September 30, 2017 and December 31, 2016, respectively.
6762
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Brokered deposits include $503.5 million in certificates of deposits and $27.3 million in money market accounts at September 30, 2018, and $471.6 million in certificates of deposits and $46.9 million in money market accounts at December 31, 2017.
The weighted average interest rate of Oriental’s deposits was 0.65% at September 30, 2018 and December 31, 2017. Interest expense for the quarters and nine-month periods ended September 30, 2018 and 2017 was as follows:
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
| (In thousands) | ||||||||||
Demand and savings deposits | $ | 3,157 |
| $ | 2,715 |
| $ | 8,924 |
| $ | 8,563 |
Certificates of deposit |
| 5,448 |
|
| 4,886 |
|
| 14,630 |
|
| 14,043 |
| $ | 8,605 |
| $ | 7,601 |
| $ | 23,554 |
| $ | 22,606 |
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2018 and December 31, 2017, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $367.8 million and $359.6 million, respectively. Such amounts include public funds time deposits from various Puerto Rico government municipalities, agencies and corporations of $43.7 million and $3.5 million at a weighted average rate of 0.54% and 0.28% at September 30, 2018 and December 31, 2017, respectively.
At September 30, 2018 and December 31, 2017, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $285.0 million and $153.1 million, respectively. These public funds were collateralized with commercial loans amounting to $265.1 million and $173.0 million at September 30, 2018 and December 31, 2017, respectively.
Excluding accrued interest of approximately $2.1 $2.6 million, the scheduled maturities of certificates of deposit at September 30, 20172018 and December 31, 20162017 are as follows:
| September 30, |
| December 31, | |||||||
| September 30, 2017 |
| December 31, 2016 |
| 2018 |
|
| 2017 | ||
| (In thousands) | (In thousands) | ||||||||
Within one year: |
|
|
|
|
|
|
|
| ||
Three (3) months or less | $ | 271,981 |
| $ | 277,621 | $ | 239,716 |
| $ | 316,382 |
Over 3 months through 1 year |
| 577,067 |
|
| 534,548 |
| 578,308 |
|
| 508,285 |
|
| 849,048 |
|
| 812,169 |
| 818,024 |
|
| 824,667 |
Over 1 through 2 years |
| 448,068 |
| 488,440 |
| 506,842 |
| 470,670 | ||
Over 2 through 3 years |
| 168,084 |
| 154,545 |
| 137,738 |
| 137,016 | ||
Over 3 through 4 years |
| 37,303 |
| 29,701 |
| 31,088 |
| 36,125 | ||
Over 4 through 5 years |
| 35,981 |
|
| 41,949 |
| 45,100 |
|
| 38,623 |
| $ | 1,538,484 |
| $ | 1,526,804 | $ | 1,538,792 |
| $ | 1,507,101 |
|
|
|
|
|
|
|
|
|
|
|
The table of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $593$360 thousand and $575$2.2 thousandmillion as of September 30, 20172018 and December 31, 2016,2017, respectively.
63
NOTE 12 — BORROWINGS AND RELATED INTEREST
Securities Sold under Agreements to Repurchase
At September 30, 2017,2018, securities underlying agreements to repurchase were delivered to, and are being held by, the counterparties with whom the repurchase agreements were transacted. The counterparties have agreed to resell to Oriental the same or similar securities at the maturity of these agreements. The purpose of these transactions is to provide financing for Oriental’s securities portfolio.
At September 30, 20172018 and December 31, 2016,2017, securities sold under agreements to repurchase (classified by counterparty), excluding accrued interest in the amount of $581$429 thousand and $1.5$369 million,thousand, respectively, were as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||||
|
|
|
| Fair Value of |
|
|
|
| Fair Value of |
|
|
| Fair Value of |
|
|
|
| Fair Value of | ||||
| Borrowing |
| Underlying |
| Borrowing |
| Underlying | Borrowing |
| Underlying |
| Borrowing |
| Underlying | ||||||||
| Balance |
| Collateral |
| Balance |
| Collateral | Balance |
| Collateral |
| Balance |
| Collateral | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
PR Cash and Money Market Fund |
| - |
|
| - |
|
| 70,010 |
|
| 74,538 | |||||||||||
South Street Securities, LLC |
| 12,000 |
| 12,590 |
| - |
| - | ||||||||||||||
JP Morgan Chase Bank NA |
| 172,500 |
| 185,848 |
| 350,219 |
| 376,674 |
| 130,000 |
| 140,364 |
| 82,500 |
| 88,974 | ||||||
Credit Suisse Securities (USA) LLC |
| - |
| - |
| 232,000 |
| 249,286 | ||||||||||||||
Nomura Securities International, Inc |
| 53,294 |
| 56,199 |
| - |
| - | ||||||||||||||
JVB Financial Group, LLC |
| 32,525 |
| 34,116 |
| - |
| - | ||||||||||||||
Federal Home Loan Bank |
| 110,000 |
| 115,836 |
| - |
| - |
| 110,000 |
| 116,432 |
| 110,000 |
| 116,509 | ||||||
Citigroup Global Markets Inc. |
| 39,989 |
|
| 42,524 |
|
| - |
|
| - | |||||||||||
Total | $ | 282,500 |
| $ | 301,684 |
| $ | 652,229 |
| $ | 700,498 | $ | 377,808 |
| $ | 402,225 |
| $ | 192,500 |
| $ | 205,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows a summary of Oriental’s repurchase agreements and their terms, excluding accrued interest in the amount of $429 thousand, at September 30, 2018:
|
|
|
|
| Weighted- |
|
|
|
|
|
| Borrowing |
| Average |
|
|
| Maturity | |
Year of Maturity |
| Balance |
| Coupon |
| Settlement Date |
| Date | |
|
| (In thousands) |
|
|
|
|
|
| |
2018 |
|
| 32,525 |
| 2.19% |
| 9/10/2018 |
| 10/10/2018 |
|
|
| 39,989 |
| 2.30% |
| 9/18/2018 |
| 10/2/2018 |
|
|
| 53,294 |
| 2.45% |
| 9/24/2018 |
| 10/25/2018 |
|
|
| 12,000 |
| 2.40% |
| 9/25/2018 |
| 10/15/2018 |
|
|
|
|
|
|
|
|
|
|
2019 |
|
| 50,000 |
| 1.72% |
| 3/2/2017 |
| 9/3/2019 |
|
|
|
|
|
|
|
|
|
|
2020 |
|
| 60,000 |
| 1.85% |
| 3/2/2017 |
| 3/2/2020 |
|
|
| 50,000 |
| 2.61% |
| 3/15/2018 |
| 3/15/2020 |
|
|
| 30,000 |
| 2.70% |
| 3/23/2018 |
| 3/23/2020 |
|
|
| 50,000 |
| 2.86% |
| 7/6/2018 |
| 7/6/2020 |
|
| $ | 377,808 |
| 2.31% |
|
|
|
|
All of the repurchase agreements referred to above with maturity dates up to the date of this report were renewed as short-term repurchase agreements.
6864
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table shows a summary of Oriental’s repurchase agreements and their terms, excluding accrued interest in the amount of $581 thousand, at September 30, 2017:
|
|
|
|
| Weighted- |
|
|
|
|
|
| Borrowing |
| Average |
|
|
| Maturity | |
Year of Maturity |
| Balance |
| Coupon |
| Settlement Date |
| Date | |
|
| (In thousands) |
|
|
|
|
|
| |
2018 |
|
| 172,500 |
| 1.42% |
| 12/10/2012 |
| 4/29/2018 |
|
|
|
|
|
|
|
|
|
|
2019 |
|
| 50,000 |
| 1.72% |
| 3/2/2017 |
| 9/3/2019 |
|
|
|
|
|
|
|
|
|
|
2020 |
|
| 60,000 |
| 1.85% |
| 3/2/2017 |
| 3/2/2020 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 282,500 |
| 1.56% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A repurchase agreement in the original amount of $500 million with an original term of ten years was modified in February 2016 to partially terminate, before maturity, $268.0 million at a cost of $12.0 million included as a loss on early extinguishment of debt in the consolidated statements of operations. The remaining balance of this repurchase agreement of $232.0 million matured on March 2, 2017. During the second quarter of 2017, repurchase agreements in the original amounts of $25.0 million and $75.0 million, respectively, with original terms of June 2019 and December 2019, respectively, were terminated before maturity at a cost of $80 thousand included as a loss on early extinguishment of debt in consolidated statement of operations.
The following table presents the repurchase liability associated with the repurchase agreement transactions (excluding accrued interest) by maturity. Also, it includes the carrying value and approximate market value of collateral (excluding accrued interest) at September 30, 20172018 and December 31, 2016.2017. There was no cash collateral at September 30, 20172018 and December 31, 2016.2017.
| September 30, 2017 | ||||||||||
|
|
|
|
|
|
| Market Value of Underlying Collateral | ||||
|
|
|
| Weighted |
| FNMA and |
|
|
| ||
| Repurchase |
| Average | FHLMC |
|
| |||||
| Liability |
| Rate |
| Certificates |
| Total | ||||
| (Dollars in thousands) | ||||||||||
Over 90 days |
| 282,500 |
|
| 1.56% |
|
| 301,684 |
|
| 301,684 |
Total | $ | 282,500 |
|
| 1.56% |
| $ | 301,684 |
| $ | 301,684 |
|
|
|
|
|
|
|
|
|
|
|
|
69
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| December 31, 2016 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
| Market Value of Underlying Collateral |
|
|
|
|
|
| Market Value of Underlying Collateral |
|
|
|
|
|
| Market Value of Underlying Collateral | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| FNMA and |
|
|
|
| Weighted |
| FNMA and | ||||||
|
|
|
| Weighted |
| FNMA and |
|
|
|
|
| US Treasury |
|
|
| Repurchase |
| Average | FHLMC |
| Repurchase |
| Average | FHLMC | ||||||||||
| Repurchase |
| Average | FHLMC |
| GNMA |
|
| Treasury |
|
| Liability |
| Rate |
| Certificates |
| Liability |
| Rate |
| Certificates | ||||||||||||
| Liability |
| Rate |
| Certificates |
| Certificates |
|
| Notes | Total | September 30, 2018 |
| December 31, 2017 | ||||||||||||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||||
Less than 90 days | $ | 349,729 |
| $ | 3.35% |
|
| 248,288 |
| $ | 75,536 |
| $ | 48,954 |
| $ | 372,778 | $ | 137,808 |
|
| 2.34% |
| $ | 145,429 |
| $ | - |
| - |
| $ | - | |
Over 90 days |
| 302,500 |
|
| 1.44% |
|
| 327,627 |
|
| 93 |
|
| - |
|
| 327,720 |
| 240,000 |
|
| 2.30% |
|
| 256,796 |
|
| 192,500 |
| 1.63% |
|
| 205,483 | |
Total | $ | 652,229 |
|
| 2.47% |
| $ | 575,915 |
| $ | 75,629 |
|
| 48,954 |
|
| 700,498 | $ | 377,808 |
|
| 2.31% |
| $ | 402,225 |
| $ | 192,500 |
| 1.63% |
| $ | 205,483 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from the Federal Home Loan Bank of New York
Advances are received from the Federal Home Loan Bank of New York (the “FHLB-NY”)FHLB-NY under an agreement whereby Oriental is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At September 30, 20172018 and December 31, 20162017, these advances were secured by mortgage and commercial loans amounting to $1.3$905.3 billionmillion and $1.4$1.3 billion, respectively. Also, at September 30, 20172018 and December 31, 20162017, Oriental had an additional borrowing capacity with the FHLB-NY of $849.5$830.7 million and $1.2 $920.0billion, million, respectively. At September 30, 20172018 and December 31, 20162017, the weighted average remaining maturity of FHLB’s advances was 5.126.2 months and 10.63.2 months, respectively. The original terms of these advances range between one month and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of September 30, 2017. 2018.
The following table shows a summary of these advances and their terms, excluding accrued interest in the amount of $312 $153thousand, at September 30, 20172018:
|
|
|
| Weighted- |
|
|
|
|
|
|
| Weighted- |
|
|
|
| ||
|
|
| Borrowing |
| Average |
|
|
| Maturity |
|
| Borrowing |
| Average |
|
|
| Maturity |
Year of Maturity |
|
| Balance |
| Coupon |
| Settlement Date |
| Date |
|
| Balance |
| Coupon |
| Settlement Date |
| Date |
|
|
| (In thousands) |
|
|
|
|
|
|
|
| (In thousands) |
|
|
|
|
|
|
2017 |
| $ | 35,487 |
| 1.29% |
| 9/1/2017 |
| 10/2/2017 | |||||||||
2018 |
| 33,964 |
| 2.32% |
| 9/4/2018 |
| 10/1/2018 | ||||||||||
|
|
| 35,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2020 |
| 8,953 |
| 2.59% |
| 7/19/2013 |
| 7/20/2020 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
2018 |
| 30,000 |
| 2.19% |
| 1/16/2013 |
| 1/16/2018 | ||||||||||
2023 |
| 12,152 |
| 2.94% |
| 5/9/2018 |
| 5/9/2023 | ||||||||||
|
|
| 25,000 |
| 2.18% |
| 1/16/2013 |
| 1/16/2018 |
| 2,087 |
| 2.92% |
| 6/8/2018 |
| 6/8/2023 | |
|
|
| 55,000 |
|
|
|
|
|
|
|
| 16,222 |
| 2.92% |
| 7/13/2018 |
| 7/13/2023 |
|
|
|
|
|
|
|
|
|
|
| $ | 73,378 |
| 2.61% |
|
|
|
|
2020 |
|
| 9,292 |
| 2.59% |
| 7/19/2013 |
| 7/20/2020 | |||||||||
|
| $ | 99,779 |
| 1.90% |
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
All of the advances referred to above with maturity dates up to the date of this report were renewed as one-month short-term advances.
Subordinated Capital Notes
Subordinated capital notes amounted to $36.1 million at September 30, 20172018 and December 31, 2016,2017, for both periods.
7065
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 13 – OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES
Oriental’s derivatives are subject to agreements which allow a right of set-off with each respective counterparty. In addition, Oriental’s securities purchased under agreements to resell and securities sold under agreements to repurchase have a right of set-off with the respective counterparty under the supplemental terms of the master repurchase agreements. In an event of default, each party has a right of set-off against the other party for amounts owed in the related agreements and any other amount or obligation owed in respect of any other agreement or transaction between them. Security collateral posted to open and maintain a master netting agreement with a counterparty, in the form of cash and securities, may from time to time be segregated in an account at a third-party custodian pursuant to a an account control agreement.
The following table presents the potential effect of rights of set-off associated with Oriental’s recognized financial assets and liabilities at September 30, 20172018 and December 31, 20162017:
September 30, 2017 | ||||||||||||||||||||||||||||||||||||
September 30, 2018 | September 30, 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 |
| $ | 809 |
| $ | - |
| $ | 809 |
| $ | 2,021 |
| $ | - |
| $ | (1,212) |
| $ | 1,265 |
| $ | - |
| $ | 1,265 |
| $ | 1,986 |
| $ | - |
| $ | (721) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 | ||||||||||||||||||||||||||||||||||||
December 31, 2017 | December 31, 2017 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| 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 |
| $ | 1,330 |
| $ | - |
| $ | 1,330 |
| $ | 2,003 |
| $ | - |
| $ | (673) |
| $ | 771 |
| $ | - |
| $ | 771 |
| $ | 2,010 |
| $ | - |
| $ | (1,239) |
7166
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2017 | ||||||||||||||||||||||||||||||||||||
September 30, 2018 | September 30, 2018 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| ||||||||||||||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net |
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount |
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||||||||||||||
Derivatives |
| $ | 1,677 |
| $ | - |
| $ | 1,677 |
| $ | - |
| $ | 1,980 |
| $ | (303) |
| $ | 622 |
| $ | - |
| $ | 622 |
| $ | - |
| $ | 1,980 |
| $ | (1,358) |
Securities sold under agreements to repurchase |
|
| 282,500 |
|
| - |
|
| 282,500 |
|
| 301,684 |
|
| - |
|
| (19,184) |
|
| 377,808 |
|
| - |
|
| 377,808 |
|
| 402,225 |
|
| - |
|
| (24,417) |
Total |
| $ | 284,177 |
| $ | - |
| $ | 284,177 |
| $ | 301,684 |
| $ | 1,980 |
| $ | (19,487) |
| $ | 378,430 |
| $ | - |
| $ | 378,430 |
| $ | 402,225 |
| $ | 1,980 |
| $ | (25,775) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||
December 31, 2017 | December 31, 2017 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
|
|
|
|
|
|
|
|
| Gross Amounts Not Offset in the Statement of Financial Condition |
|
| ||||||||||||||
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
|
|
|
|
|
| Net Amount of |
|
|
|
|
|
| ||||||||||||
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
|
|
|
| Gross Amounts |
| Liabilities |
|
|
|
|
|
| ||||||||||||
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
|
|
|
| Offset in the |
| Presented |
|
|
|
|
|
|
|
|
| ||||||
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
|
| Gross Amount |
| Statement of |
| in Statement |
|
|
| Cash |
|
| ||||||||||||
|
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net |
| of Recognized |
| Financial |
| of Financial |
| Financial |
| Collateral |
| Net | ||||||||||||
|
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount |
| Liabilities |
| Condition |
| Condition |
| Instruments |
| Provided |
| Amount | ||||||||||||
|
| (In thousands) |
| (In thousands) | ||||||||||||||||||||||||||||||||
Derivatives |
| $ | 2,437 |
| $ | - |
| $ | 2,437 |
| $ | - |
| $ | 1,980 |
| $ | 457 |
| $ | 1,281 |
| $ | - |
| $ | 1,281 |
| $ | - |
| $ | 1,980 |
| $ | (699) |
Securities sold under agreements to repurchase |
|
| 652,229 |
|
| - |
|
| 652,229 |
|
| 700,498 |
|
| - |
|
| (48,269) |
|
| 192,500 |
|
| - |
|
| 192,500 |
|
| 205,483 |
|
| - |
|
| (12,983) |
Total |
| $ | 654,666 |
| $ | - |
| $ | 654,666 |
| $ | 700,498 |
| $ | 1,980 |
| $ | (47,812) |
| $ | 193,781 |
| $ | - |
| $ | 193,781 |
| $ | 205,483 |
| $ | 1,980 |
| $ | (13,682) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7267
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Oriental is subject to the provisions of the Puerto Rico Internal Revenue Code of 2011, as amended (the “Code”), which imposes a maximum statutory corporate tax rate of 39% on a corporation’s net taxable income. Under the Code, all corporations are treated as separate taxable entities and are not entitled to file consolidated tax returns. Such entities are subject to Puerto Rico regular income tax or the alternative minimum tax (“AMT”) on income earned from all sources pursuant to the Code. The AMT is payable if it exceeds regular income tax. The excess of AMT over regular income tax paid in any one year may be used to offset regular income tax in future years, subject to certain limitations.
Oriental also has operations in the United States mainland through its wholly owned subsidiary, OPC, a retirement plan administrator based in Florida. In October 2017, Oriental expanded its operations in the United States through the Bank’s wholly owned subsidiary, OFG USA. Both subsidiaries are subject to federal income taxes at the corporate level. In addition, OPC is subject to Florida state taxes and OFG USA is subject to North Carolina state taxes.
At September 30, 20172018 and December 31, 2016,2017, Oriental’s net deferred tax asset amounted to $126.0$122.9 million and $124.2$127.4 million, respectively. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is mainly dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax asset areis deductible, management believes it is more likely than not that Oriental will realize the deferred tax asset, net of the existing valuation allowances recorded at September 30, 20172018 and December 31, 2016.2017. 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 duringincome.
Oriental maintained an effective tax rate lower than statutory rate for the carry forward periodnine-month periods ended September 30, 2018 and 2017 of 33.7% and 29.8%, 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 reduced.taxed at a lower rate.
At September 30, 2017 and December 31, 2016, Oriental International Bank Inc. (“OIB”), the Bank’s international banking entity subsidiary, had $5 thousand and $117 thousand, respectively, in income tax effect of unrecognized gain on available-for-sale securities included in other comprehensive income. Following the change in OIB’s applicable tax rate from 5% to 0% as a result of a Puerto Rico law adopted in 2011, this remaining tax balance will flow through income as these securities are repaid or sold in future periods. During the quarters ended September 30, 2017 and 2016, $1 thousand and $9 thousand, respectively, related to this residual tax effect from OIB was reclassified from accumulated other comprehensive income (loss) into income tax provision. During the nine-month period ended September 30, 2017 and 2016, $103 thousand and $24 thousand, respectively, related to this residual tax effect from OIB was reclassified from accumulated other comprehensive income (loss) into income tax provision.
Oriental classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At September 30, 2018 and December 31, 2017, the amount of unrecognized tax benefits was $1.2 million (December 31, 2016 - $2.0amounted at $858 million).thousand and $1.3 million, respectively. The change in unrecognized tax benefits is mainly related to the expiration of a statute of limitation, resulting in a benefit of $468 thousand. Oriental had accrued $73$64 thousand at September 30, 20172018 (December 31, 20162017 - $229$97 thousand) for the payment of interest and penalties relating to unrecognized tax benefits and released $877 thousand related to amounts accrued for periods whose statute of limitation expired.
Oriental is subject to the dispositions of the 2011 Puerto Rico Internal Revenue Code, as amended (the "Code"). The Code imposes a maximum corporate tax rate of 39%. Oriental maintained a lower effective tax rate for the nine-month periods ended September 30, 2017 and 2016 of 29.8% and 28.8%, respectively..
Income tax expense for the quarters ended September 30, 2018 and 2017 was $12.3 million and 2016 was $560 thousand, and $3.6 million, respectively. Income tax expense for the nine-month periods ended September 30, 2018 and 2017 was $29.9 million and 2016 was $13.8 million, and $15.1 million, respectively.respectively.
7368
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 15 — REGULATORY CAPITAL REQUIREMENTS
Regulatory Capital Requirements
OrientalOFG Bancorp (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Oriental’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Oriental and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Pursuant to the Dodd-Frank Act, federal banking regulators adopted capital rules that became effective January 1, 2015 for Oriental and the Bank (subject to certain phase-in periods through January 1, 2019) and that replaced their general risk-based capital rules, advanced approaches rule, market risk rule, and leverage rules. Among other matters, the new capital rules: (i) introduce a new capital measure called “Common Equity Tier 1” (“CET1”) and related regulatory capital ratio of CET1 to risk-weighted assets; (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements; (iii) mandate that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital; and (iv) expand the scope of the deductions from and adjustments to capital as compared to prior regulations. The current capital rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the currentprevious four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, and resulting in higher risk weights for a variety of asset classes.
Pursuant to the current capital rules, the minimum capital ratios requirements are as follows:
4.5% CET1 to risk-weighted assets;
6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known
as the “leverage ratio”).
As of September 30, 20172018 and December 31, 20162017, OrientalOFG Bancorp and the Bank met all capital adequacy requirements to which they are subject. As of September 30, 20172018 and December 31, 20162017, 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.
7469
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OFG Bancorp’s and the Bank’s actual capital amounts and ratios as of September 30, 20172018 and December 31, 20162017 are as follows:
|
|
|
|
|
| Minimum Capital |
| Minimum to be Well |
|
|
|
|
| Minimum Capital |
| Minimum to be Well | ||||||||||||
| Actual |
| Requirement |
| Capitalized | Actual |
| Requirement |
| Capitalized | ||||||||||||||||||
| Amount |
| Ratio |
| Amount |
| Ratio |
|
| Amount |
| Ratio | Amount |
| Ratio |
| Amount |
| Ratio |
|
| Amount |
| Ratio | ||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||
OFG Bancorp Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
As of September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total capital to risk-weighted assets | $ | 885,523 |
| 20.82% |
| $ | 340,208 |
| 8.00% |
| $ | 425,260 |
| 10.00% | $ | 953,543 |
| 19.84% |
| $ | 384,508 |
| 8.00% |
| $ | 480,635 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 830,640 |
| 19.53% |
| $ | 255,156 |
| 6.00% |
| $ | 340,208 |
| 8.00% | $ | 891,807 |
| 18.55% |
| $ | 288,381 |
| 6.00% |
| $ | 384,508 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 633,401 |
| 14.89% |
| $ | 191,367 |
| 4.50% |
| $ | 276,419 |
| 6.50% | $ | 690,937 |
| 14.38% |
| $ | 216,286 |
| 4.50% |
| $ | 312,413 |
| 6.50% |
Tier 1 capital to average total assets | $ | 830,640 |
| 14.07% |
| $ | 236,105 |
| 4.00% |
| $ | 295,131 |
| 5.00% | $ | 891,807 |
| 13.93% |
| $ | 255,993 |
| 4.00% |
| $ | 319,992 |
| 5.00% |
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
As of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total capital to risk-weighted assets | $ | 876,657 |
| 19.62% |
| $ | 357,404 |
| 8.00% |
| $ | 446,756 |
| 10.00% | $ | 899,258 |
| 20.34% |
| $ | 353,653 |
| 8.00% |
| $ | 442,067 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 819,662 |
| 18.35% |
| $ | 268,053 |
| 6.00% |
| $ | 357,404 |
| 8.00% | $ | 842,133 |
| 19.05% |
| $ | 265,240 |
| 6.00% |
| $ | 353,653 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 627,733 |
| 14.05% |
| $ | 201,040 |
| 4.50% |
| $ | 290,391 |
| 6.50% | $ | 644,804 |
| 14.59% |
| $ | 198,930 |
| 4.50% |
| $ | 287,343 |
| 6.50% |
Tier 1 capital to average total assets | $ | 819,662 |
| 12.99% |
| $ | 252,344 |
| 4.00% |
| $ | 315,430 |
| 5.00% | $ | 842,133 |
| 13.92% |
| $ | 242,057 |
| 4.00% |
| $ | 302,571 |
| 5.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
| Minimum Capital |
| Minimum to be Well |
|
|
|
|
| Minimum Capital |
| Minimum to be Well | ||||||||||||
| Actual |
| Requirement |
| Capitalized | Actual |
| Requirement |
| Capitalized | ||||||||||||||||||
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio | ||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||
Bank Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
As of September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total capital to risk-weighted assets | $ | 867,538 |
| 20.39% |
| $ | 340,304 |
| 8.00% |
| $ | 425,380 |
| 10.00% | $ | 925,447 |
| 19.28% |
| $ | 383,971 |
| 8.00% |
| $ | 479,964 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 812,833 |
| 19.11% |
| $ | 255,228 |
| 6.00% |
| $ | 340,304 |
| 8.00% | $ | 863,978 |
| 18.00% |
| $ | 287,979 |
| 6.00% |
| $ | 383,971 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 812,833 |
| 19.11% |
| $ | 191,421 |
| 4.50% |
| $ | 276,497 |
| 6.50% | $ | 863,978 |
| 18.00% |
| $ | 215,984 |
| 4.50% |
| $ | 311,977 |
| 6.50% |
Tier 1 capital to average total assets | $ | 812,833 |
| 13.81% |
| $ | 235,364 |
| 4.00% |
| $ | 294,204 |
| 5.00% | $ | 863,978 |
| 13.56% |
| $ | 254,847 |
| 4.00% |
| $ | 318,559 |
| 5.00% |
As of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
As of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total capital to risk-weighted assets | $ | 857,259 |
| 19.23% |
| $ | 356,596 |
| 8.00% |
| $ | 445,745 |
| 10.00% | $ | 879,648 |
| 19.92% |
| $ | 353,265 |
| 8.00% |
| $ | 441,581 |
| 10.00% |
Tier 1 capital to risk-weighted assets | $ | 800,544 |
| 17.96% |
| $ | 267,447 |
| 6.00% |
| $ | 356,596 |
| 8.00% | $ | 822,776 |
| 18.63% |
| $ | 264,949 |
| 6.00% |
| $ | 353,265 |
| 8.00% |
Common equity tier 1 capital to risk-weighted assets | $ | 800,544 |
| 17.96% |
| $ | 200,585 |
| 4.50% |
| $ | 289,734 |
| 6.50% | $ | 822,776 |
| 18.63% |
| $ | 198,712 |
| 4.50% |
| $ | 287,028 |
| 6.50% |
Tier 1 capital to average total assets | $ | 800,544 |
| 12.75% |
| $ | 251,200 |
| 4.00% |
| $ | 314,000 |
| 5.00% | $ | 822,776 |
| 13.63% |
| $ | 241,417 |
| 4.00% |
| $ | 301,771 |
| 5.00% |
75
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 16 – STOCKHOLDERS’ EQUITY
Additional paid-in capital represents contributed capital in excess of par value of common and preferred stock net of the costs of issuance. As of both periods, September 30, 20172018 and December 31, 20162017, accumulated issuance costs charged against additional paid inpaid-in capital amounted to $13.6 million and $10.1 million for preferred and common stock, respectively.
70
Legal Surplus
The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income or loss for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At September 30, 20172018 and December 31, 2016,2017, the Bank’s legal surplus amounted to $79.8$87.6 million and $76.3$81.5 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.
Under Oriental’s current stock repurchase program it is authorized to purchase in the open market up to $7.7 million of its outstanding shares of common stock. The shares of common stock repurchased are to be held by Oriental as treasury shares. During the nine-month periods ended September 30, 20172018 and 2016,2017, Oriental did not purchase any shares under the program.
At September 30, 20172018 the number of shares that may yet be purchased under the $70 million program is estimated at 844,902478,691 and was calculated by dividing the remaining balance of $7.7 million by $9.15$16.15 (closing price of Oriental's common stock at September 30, 2017)2018).
The activity in connection with common shares held in treasury by Oriental for the nine-month periods ended September 30, 20172018 and 20162017 is set forth below:below:
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | ||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||
|
|
| Dollar |
|
|
| Dollar |
|
| Dollar |
|
|
| Dollar | ||||
| Shares |
| Amount |
| Shares |
| Amount | Shares |
| Amount |
| Shares |
| Amount | ||||
| (In thousands, except shares data) | (In thousands, except shares data) | ||||||||||||||||
Beginning of period | 8,711,025 |
| $ | 104,860 |
| 8,757,960 |
| $ | 105,379 | 8,678,427 |
| $ | 104,502 |
| 8,711,025 |
| $ | 104,860 |
Common shares used upon lapse of restricted stock units | (32,598) |
|
| (358) |
| (45,810) |
|
| (505) | (58,424) |
|
| (796) |
| (32,598) |
|
| (358) |
End of period | 8,678,427 |
| $ | 104,502 |
| 8,712,150 |
| $ | 104,874 | 8,620,003 |
| $ | 103,706 |
| 8,678,427 |
| $ | 104,502 |
76
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 17 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income, net of income taxes, as of September 30, 20172018 and December 31, 20162017 consisted of:
| September 30, |
| December 31, | ||
| 2017 |
| 2016 | ||
| (In thousands) | ||||
Unrealized gain on securities available-for-sale which are not other-than-temporarily impaired | $ | 1,487 |
| $ | 1,617 |
Income tax effect of unrealized gain on securities available-for-sale |
| (116) |
|
| 592 |
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired |
| 1,371 |
|
| 2,209 |
Unrealized loss on cash flow hedges |
| (868) |
|
| (1,004) |
Income tax effect of unrealized loss on cash flow hedges |
| 339 |
|
| 391 |
Net unrealized loss on cash flow hedges |
| (529) |
|
| (613) |
Accumulated other comprehensive (loss) income, net of income taxes | $ | 842 |
| $ | 1,596 |
| September 30, |
| December 31, | ||
| 2018 |
| 2017 | ||
| (In thousands) | ||||
Unrealized loss on securities available-for-sale which are not other-than-temporarily impaired | $ | (24,343) |
| $ | (3,003) |
Income tax effect of unrealized loss on securities available-for-sale |
| 3,155 |
|
| 365 |
Net unrealized gain on securities available-for-sale which are not other-than-temporarily impaired |
| (21,188) |
|
| (2,638) |
Unrealized gain (loss) on cash flow hedges |
| 643 |
|
| (510) |
Income tax effect of unrealized (gain) loss on cash flow hedges |
| (250) |
|
| 199 |
Net unrealized gain (loss) on cash flow hedges |
| 393 |
|
| (311) |
Accumulated other comprehensive (loss), net of income taxes | $ | (20,795) |
| $ | (2,949) |
7771
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents changes in accumulated other comprehensive income by component, net of taxes, for the quarters and nine-month periods ended September 30, 20172018 and 2016:2017:
| Quarter Ended September 30, | Quarter Ended September 30, | ||||||||||||||||||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||||||||||||||||
| Net unrealized |
| Net unrealized |
| Accumulated |
| 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 |
| gains on |
| loss on |
| other | ||||||||||||
| securities |
| cash flow |
| comprehensive |
| securities |
| cash flow |
| comprehensive | securities |
| cash flow |
| comprehensive |
| securities |
| cash flow |
| comprehensive | ||||||||||||
| available-for-sale |
| hedges |
| (loss) income |
| available-for-sale |
| hedges |
| income | available-for-sale |
| hedges |
| (loss) income |
| available-for-sale |
| hedges |
| (loss) income | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 256 |
| $ | (563) |
| $ | (307) |
| $ | 18,085 |
| $ | (2,280) |
| $ | 15,805 | $ | (15,518) |
| $ | 256 |
| $ | (15,262) |
| $ | 256 |
| $ | (563) |
| $ | (307) |
Other comprehensive loss before reclassifications |
| 1,185 |
|
| (74) |
|
| 1,111 |
| (469) |
|
| (144) |
|
| (613) |
| (5,607) |
|
| (380) |
|
| (5,987) |
| 1,185 |
|
| (74) |
|
| 1,111 | ||
Amounts reclassified out of accumulated other comprehensive income (loss) |
| (70) |
|
| 108 |
|
| 38 |
|
| (63) |
|
| 715 |
|
| 652 |
| (63) |
|
| 517 |
|
| 454 |
| (70) |
|
| 108 |
|
| 38 | |
Other comprehensive income (loss) |
| 1,115 |
|
| 34 |
|
| 1,149 |
|
| (532) |
|
| 571 |
|
| 39 |
| (5,670) |
|
| 137 |
|
| (5,533) |
| 1,115 |
|
| 34 |
|
| 1,149 | |
Ending balance | $ | 1,371 |
| $ | (529) |
| $ | 842 |
| $ | 17,553 |
| $ | (1,709) |
| $ | 15,844 | $ | (21,188) |
| $ | 393 |
| $ | (20,795) |
| $ | 1,371 |
| $ | (529) |
| $ | 842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Nine-Month Period Ended September 30, | Nine-Month Period Ended September 30, | ||||||||||||||||||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||||||||||||||||
| Net unrealized |
| Net unrealized |
| Accumulated |
| 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 |
| gains on |
| loss on |
| other | ||||||||||||
| securities |
| cash flow |
| comprehensive |
| securities |
| cash flow |
| comprehensive | securities |
| cash flow |
| comprehensive |
| securities |
| cash flow |
| comprehensive | ||||||||||||
| available-for-sale |
| hedges |
| (loss) income |
| available-for-sale |
| hedges |
| income | available-for-sale |
| hedges |
| (loss) income |
| available-for-sale |
| hedges |
| (loss) income | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Beginning balance | $ | 2,209 |
|
| (613) |
|
| 1,596 |
| 16,924 |
|
| (2,927) |
|
| 13,997 | $ | (2,638) |
| $ | (311) |
| $ | (2,949) |
| $ | 2,209 |
| $ | (613) |
| $ | 1,596 | |
Other comprehensive income (loss) before reclassifications |
| (726) |
|
| (301) |
|
| (1,027) |
|
| (1,732) |
|
| (2,550) |
|
| (4,282) | |||||||||||||||||
Other-than-temporary impairment amount reclassified from accumulated other comprehensive income |
| - |
|
| - |
|
| - |
|
| 2,557 |
|
| - |
|
| 2,557 | |||||||||||||||||
Other comprehensive loss before reclassifications |
| (18,361) |
|
| (635) |
|
| (18,996) |
| (726) |
|
| (301) |
|
| (1,027) | ||||||||||||||||||
Amounts reclassified out of accumulated other comprehensive income (loss) |
| (112) |
|
| 385 |
|
| 273 |
|
| (196) |
|
| 3,768 |
|
| 3,572 |
| (189) |
|
| 1,339 |
|
| 1,150 |
| (112) |
|
| 385 |
|
| 273 | |
Other comprehensive income (loss) |
| (838) |
|
| 84 |
|
| (754) |
|
| 629 |
|
| 1,218 |
|
| 1,847 |
| (18,550) |
|
| 704 |
|
| (17,846) |
| (838) |
|
| 84 |
|
| (754) | |
Ending balance | $ | 1,371 |
| $ | (529) |
| $ | 842 |
| $ | 17,553 |
| $ | (1,709) |
| $ | 15,844 | $ | (21,188) |
| $ | 393 |
| $ | (20,795) |
| $ | 1,371 |
| $ | (529) |
| $ | 842 |
7872
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents reclassifications out of accumulated other comprehensive income for the quarters and nine-month periods ended September 30, 20172018 and 2016:2017:
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Quarter Ended September 30, | |||||
|
| 2018 |
|
| 2017 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 517 |
| $ | 108 | Net interest expense |
Available-for-sale securities: |
|
|
|
|
|
|
Gain on sale of investments |
| - |
|
| 4 | Income tax expense |
Residual tax effect from OIB's change in applicable tax rate |
| - |
|
| 1 | Income tax expense |
Tax effect from changes in tax rates |
| (63) |
|
| (71) | Income tax expense |
| $ | 454 |
| $ | 42 |
|
|
|
|
|
|
|
|
| Amount reclassified out of accumulated other comprehensive income | Affected Line Item in Consolidated Statement of Operations | ||||
| ||||||
| Nine-Month Period Ended September 30, | |||||
|
| 2018 |
|
| 2017 | |
| (In thousands) |
| ||||
Cash flow hedges: |
|
|
|
|
|
|
Interest-rate contracts | $ | 1,339 |
| $ | 385 | Net interest expense |
Available-for-sale securities: |
|
|
|
|
|
|
Gain on sale of investments |
| - |
|
| 6,896 | Income tax expense |
Residual tax effect from OIB's change in applicable tax rate |
| 5 |
|
| 104 | Income tax expense |
Tax effect from changes in tax rates |
| (194) |
|
| (216) | Income tax expense |
| $ | 1,150 |
| $ | 7,169 |
|
|
|
|
|
|
|
|
| Amount reclassified out of accumulated other |
|
| ||||
| comprehensive (loss) income |
| Affected Line Item in | ||||
| Quarter Ended September 30, |
| Consolidated Statement | ||||
|
| 2017 |
|
| 2016 |
| of Operations |
| (In thousands) |
|
| ||||
Cash flow hedges: |
|
|
|
|
|
|
|
Interest-rate contracts | $ | 108 |
| $ | 664 |
| Net interest expense |
Tax effect from increase in capital gains tax rate |
| - |
|
| 51 |
| Income tax expense |
Available-for-sale securities: |
|
|
|
|
|
|
|
Residual tax effect from OIB's change in applicable tax rate |
| 1 |
|
| 9 |
| Income tax expense |
Tax effect from increase in capital gains tax rate |
| (71) |
|
| (72) |
| Income tax expense |
| $ | 38 |
| $ | 652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount reclassified out of accumulated other |
|
| ||||
| comprehensive (loss) income |
| Affected Line Item in | ||||
| Nine-Month Period Ended September 30, |
| Consolidated Statement | ||||
|
| 2017 |
|
| 2016 |
| of Operations |
| (In thousands) |
|
| ||||
Cash flow hedges: |
|
|
|
|
|
|
|
Interest-rate contracts | $ | 385 |
| $ | 3,468 |
| Net interest expense |
Tax effect from increase in capital gains tax rate |
| - |
|
| 300 |
| Income tax expense |
Available-for-sale securities: |
|
|
|
|
|
|
|
Residual tax effect from OIB's change in applicable tax rate |
| 104 |
|
| 24 |
| Income tax expense |
Tax effect from increase in capital gains tax rate |
| (216) |
|
| (220) |
| Income tax expense |
| $ | 273 |
| $ | 3,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7973
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 18 – EARNINGS PER COMMON SHARE
The calculation of earnings per common share for the quarters and nine-month periods ended September 30, 20172018 and 20162017 is as follows:
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
| (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||
Net income | $ | 3,319 |
| $ | 15,120 |
| $ | 35,573 |
| $ | 43,630 | $ | 23,100 |
| $ | 3,319 |
| $ | 59,666 |
| $ | 35,573 |
Less: Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-convertible preferred stock (Series A, B, and D) |
| (1,627) |
| (1,627) |
|
| (4,883) |
| (4,883) |
| (1,628) |
| (1,627) |
|
| (4,883) |
| (4,883) | ||||
Convertible preferred stock (Series C) |
| (1,838) |
|
| (1,838) |
|
| (5,513) |
|
| (5,513) |
| (1,838) |
|
| (1,838) |
|
| (5,513) |
|
| (5,513) |
(Loss) Income available to common shareholders | $ | (146) |
| $ | 11,655 |
| $ | 25,177 |
| $ | 33,234 | |||||||||||
Effect of assumed conversion of the convertible ' ' preferred stock |
| 1,838 |
|
| 1,838 |
|
| 5,513 |
|
| 5,513 | |||||||||||
Income available to common shareholders | $ | 19,634 |
| $ | (146) |
| $ | 49,270 |
| $ | 25,177 | |||||||||||
Effect of assumed conversion of the convertible preferred stock |
| 1,838 |
|
| 1,838 |
|
| 5,513 |
|
| 5,513 | |||||||||||
Income available to common shareholders assuming conversion | $ | 1,692 |
| $ | 13,493 |
| $ | 30,690 |
| $ | 38,747 | $ | 21,472 |
| $ | 1,692 |
| $ | 54,783 |
| $ | 30,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average common shares outstanding |
| 43,947 |
| 43,926 |
|
| 43,937 |
| 43,913 |
| 43,996 |
| 43,947 |
|
| 43,975 |
| 43,937 | ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Average potential common shares-options |
| 17 |
| 47 |
|
| 20 |
| 40 |
| 209 |
| 17 |
|
| 110 |
| 20 | ||||
Average potential common shares-assuming ' ' conversion of convertible preferred stock |
| 7,138 |
|
| 7,138 |
|
| 7,138 |
|
| 7,138 | |||||||||||
Total weighted average common shares ' 'outstanding and equivalents |
| 51,102 |
|
| 51,111 |
|
| 51,095 |
|
| 51,091 | |||||||||||
Average potential common shares-assuming conversion of convertible preferred stock |
| 7,259 |
|
| 7,138 |
|
| 7,259 |
|
| 7,138 | |||||||||||
Total weighted average common shares outstanding and equivalents |
| 51,464 |
|
| 51,102 |
|
| 51,344 |
|
| 51,095 | |||||||||||
Earnings per common share - basic | $ | - |
| $ | 0.27 |
| $ | 0.57 |
| $ | 0.76 | $ | 0.45 |
| $ | - |
| $ | 1.12 |
| $ | 0.57 |
Earnings per common share - diluted | $ | - |
| $ | 0.26 |
| $ | 0.56 |
| $ | 0.76 | $ | 0.42 |
| $ | - |
| $ | 1.07 |
| $ | 0.56 |
74
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In computing diluted earnings per common share, the 84,000 84,000 shares of convertible preferred stock, which remain outstanding at September 30, 2017,2018, with a conversion rate, subject to certain conditions, of 86.4225 shares of common stock per share, were included as average potential common shares from the date they were issued and outstanding. Moreover, in computing diluted earnings per common share, the dividends declared during the quarters and nine-month periods ended September 30, 20172018 and 20162017 on the convertible preferred stock were added back as income available to common shareholders.
For the quarters ended September 30, 20172018 and 2016,2017, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 922,601307,925 and 927,069922,601, respectively. For the nine-month period ended September 30, 20172018 and 2016,2017, weighted-average stock options with an anti-dilutive effect on earnings per share not included in the calculation amounted to 935,740435,950 and 957,670935,740, respectively.
80
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At September 30, 20172018 and December 31, 20162017 , the unamortized balance of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $18.2$15.7 million and $4.0$21.1 million, respectively.
As a result of the BBVAPR Acquisition, Oriental assumedhas a liability for residential mortgage loans sold subject to credit recourse pursuant to FNMA’s residential mortgage loan sales and securitization programs. At September 30, 20172018 and December 31, 2016,2017, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was $6.65.5 million and $20.16.4 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 September 30, 20172018 and 2016.2017.
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Balance at beginning of period | $ | 570 |
| $ | 162 |
| $ | 710 |
| $ | 439 | $ | 264 |
| $ | 570 |
| $ | 358 |
| $ | 710 |
Net (charge-offs/terminations) recoveries |
| (118) |
|
| 29 |
|
| (258) |
|
| (248) |
| (60) |
|
| (118) |
|
| (154) |
|
| (258) |
Balance at end of period | $ | 452 |
| $ | 191 |
| $ | 452 |
| $ | 191 | $ | 204 |
| $ | 452 |
| $ | 204 |
| $ | 452 |
The estimated losses to be absorbed under the credit recourse arrangements were recorded as a liability when the credit recourse was assumed, and are updated on a quarterly basis. The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The probability of default represents the probability that a loan in good standing would become 120 days delinquent, in which case Oriental is obligated to repurchase the loan. The recourse obligation will be fully extinguished before the end of 2017.
If a borrower defaults, pursuant to the credit recourse provided, Oriental is required to repurchase the loan or reimburse the third partythird-party investor for the incurred loss. The maximum potential amount of future payments that Oriental would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarter ended September 30, 2017, Oriental did not repurchase any unpaid principal balance in mortgage loans subject to credit recourse provisions. During the quarter ended 2016,2018, Oriental repurchased approximately $133$234 thousand of unpaid principal balance in mortgage loans subject to the credit recourse provisions. During the quarter ended September 30, 2017, Oriental did not repurchase any unpaid principal balance of mortgage loans subject to credit recourse provisions. During the nine-month periods ended September 30, 20172018 and 2016,2017, Oriental repurchased approximately $107$569 thousand and $421$107 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 September 30, 2017,2018, Oriental’s liability for estimated credit losses related to loans sold with credit recourse amounted to $452$204 thousand (December 31, 2016– $7102017– $358 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
75
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
FNMA or other private investors for cash. As required under such mortgage backed securities programs, quality review procedures are performed by Oriental to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, Oriental may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the quarter ended September 30,September 30, 2017 2018, Oriental repurchased $625$1.6 thousandmillion (September 30, 20162017 – $791$625 thousand) 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, 2018, Oriental repurchased $5.9 million (September 30, 2017 and September 30, 2016, Oriental– $3.0 repurchased $3.0 million and $3.1 million, respectively,million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred before. above.
During the quarter ended September 30, 2017,2018, Oriental did not recognize any gains orrecognized $30 thousand in losses from the repurchase of residential mortgage loans sold subject to credit recourse,. and $41 thousand in losses from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties. During the quarter ended September 30, 2016,2017, Oriental recognized $202 thousand, in
81
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
did not recognize any gains or losses from the repurchase of residential mortgage loans sold subject to credit recourse.recourse, but did recognize $74 thousand in losses from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties. During the quartersnine-month periods ended September 30, 2017 and September 30, 2016,2018 and 2017, Oriental recognized $74$406 thousand and $208 $354 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $71 thousand and $517thousand, respectively, in losses from the repurchase of residential mortgage loans as a result of breaches of the customary representations and warranties. During the nine-month periods ended September 30, 2017 and 2016, Oriental recognized $354 thousand and $313 thousand, respectively, in losses from the repurchase of residential mortgage loans sold subject to credit recourse, and $517 thousand and $1.0 million, respectively, from the repurchase of residential mortgage loans as a result of breaches of the customary representations and warranties.
Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including the FHLMC, require Oriental to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. At September 30, 20172018, Oriental serviced $862.7$891.0 million (December 31, 2017 - $864.9 million) in mortgage loans for third-parties. Oriental generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, Oriental must absorb the cost of the funds it advances during the time the advance is outstanding. Oriental must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and Oriental would not receive any future servicing income with respect to that loan. At September 30, 20172018, the outstanding balance of funds advanced by Oriental under such mortgage loan servicing agreements was approximately $402$798 thousand (December 31, 20162017 - $334$440 thousand). To the extent the mortgage loans underlying Oriental's servicing portfolio experience increased delinquencies, Oriental would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.
NOTE 20— COMMITMENTS AND CONTINGENCIES
Loan Commitments
In the normal course of business, Oriental becomes a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby and commercial letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition. The contract or notional amount of those instruments reflects the extent of Oriental’s involvement in particular types of financial instruments.
Oriental’s exposure to credit losses in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit, including commitments under credit card arrangements, and commercial letters of credit is represented by the contractual notional amounts of those instruments, which do not necessarily represent the amounts potentially subject to risk. In addition, the measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are identified. Oriental uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
76
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit-related financial instruments at September 30, 20172018 and December 31, 20162017 were as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Commitments to extend credit | $ | 457,104 |
| $ | 492,885 | $ | 566,030 |
| $ | 485,019 |
Commercial letters of credit |
| 1,403 |
|
| 2,721 |
| 1,464 |
|
| 494 |
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.
82
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At September 30, 20172018 and December 31, 2016,2017, 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 $$742667 thousand and $567 thousand, at September 30, 20172018 and December 31, 20162017, respectively.
Commercial letters of credit are issued or confirmed to guarantee payment of customers’ payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the risk associated with these contracts.
The summary of instruments that are considered financial guarantees in accordance with the authoritative guidance related to guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others, at September 30, 20172018 and December 31, 2016,2017, is as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands) | (In thousands) | ||||||||
Standby letters of credit and financial guarantees | $ | 18,215 |
| $ | 4,041 | $ | 15,721 |
| $ | 21,107 |
Loans sold with recourse |
| 6,568 |
|
| 20,126 |
| 5,490 |
|
| 6,420 |
Standby letters of credit and financial guarantees are written conditional commitments issued by Oriental to guarantee the payment and/or performance of a customer to a third party (“beneficiary”). If the customer fails to comply with the agreement, the beneficiary may draw on the standby letter of credit or financial guarantee as a remedy. The amount of credit risk involved in issuing letters of credit in the event of nonperformance is the face amount of the letter of credit or financial guarantee. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The amount of collateral obtained, if it is deemed necessary by Oriental upon extension of credit, is based on management’s credit evaluation of the customer.
Lease Commitments
Oriental has entered into various operating lease agreements for branch facilities and administrative offices. Rent expense for theboth quarters ended September 30, 20172018 and 2016,2017, amounted to $2.0 million, respectively.million. For the nine-month periods ended September 30, 20172018 and 2016,2017, rent expense amounted to $$7.4 6.5 million and $6.5 million, respectively, and is included in the "occupancy and equipment" caption in the unaudited consolidated statements of operations. Future rental commitments under leases in effect at September 30, 2017,2018, exclusive of taxes, insurance, and maintenance expenses payable by Oriental, are summarized as follows:
| Minimum Rent | Minimum Rent | ||
Year Ending December 31, | (In thousands) | (In thousands) | ||
2017 | $ | 2,027 | ||
2018 |
| 7,085 | $ | 4,868 |
2019 |
| 6,928 |
| 5,977 |
2020 |
| 6,201 |
| 4,062 |
2021 |
| 5,371 |
| 3,360 |
2022 |
| 2,494 | ||
Thereafter |
| 7,881 |
| 6,926 |
| $ | 35,493 | $ | 27,687 |
|
|
|
|
|
83
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contingencies
Oriental and its subsidiaries are defendants in a number of legal proceedings incidental to their business. In the ordinary course of business, Oriental and its subsidiaries are also subject to governmental and regulatory examinations. Certain subsidiaries of Oriental, including the Bank (and its subsidiary, OIB), Oriental Financial Services, and Oriental Insurance, are subject to regulation by various U.S., Puerto Rico and other regulators.
Oriental seeks to resolve all arbitration, litigation and regulatory matters in the manner management believes is in the best interests of Oriental and its shareholders, and contests allegations of liability or wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.
Subject to the accounting and disclosure framework under the provisions of ASC 450, it is the opinion of Oriental’s management, based on current knowledge and after taking into account its current legal accruals, that the eventual outcome of all matters would not be likely to have a material adverse effect on the consolidated statements of financial condition of Oriental. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse effect on Oriental’s consolidated results of operations or cash flows in particular quarterly or annual periods. Oriental has evaluated all arbitration, litigation and regulatory matters where the likelihood of a potential loss is deemed reasonably possible. Oriental has determined that the estimate of the reasonably possible loss is not significant.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Oriental follows the fair value measurement framework under U.S. Generally Accepted Accounting Principles (“GAAP”).
Fair Value Measurement
The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Money market investments
The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.
Investment securities
The fair value of investment securities is based on quoted market prices, when available, or market prices provided by Interactive Data Corporation ("IDC"), andan independent, well-recognized pricing company. Such securities are classified as Level 1 or Level 2 depending on the basis for determining fair value. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument, and such securities are classified as Level 3. At September 30, 20172018 and December 31, 2016,2017, Oriental did not have investment securities classified as Level 3.
Securities purchased under agreements to resell
84
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The fair value of securities purchased under agreements to resell is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of instruments.
Derivative instruments
The fair value of the interest rate swaps is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, the level of interest rates, as well as the expectations for rates in the future. The fair value of most of these derivative instruments is based on observable market parameters, which include discounting the instruments’ cash flows using the U.S. dollar LIBOR-based discount rates, and also applying yield curves that account for the industry sector and the credit rating of the counterparty and/or Oriental.
Certain other derivative instruments with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on their valuation methodology, derivative instruments are classified as Level 2 or Level 3. In the past, Oriental offered its customers certificates of deposit with an option tied to the performance of the S&P Index and used equity indexed option agreements with major broker-dealers to manage its exposure to changes in this index. Their fair value was obtained through the use of an external based valuation that was thoroughly evaluated and adopted by management as its measurement tool for these options. The payoff of these options was linked to the average value of the S&P Index on a specific set of dates during the life of the option. The methodology used an average rate option or a cash-settled option whose payoff was based on the difference between the expected average value of the S&P Index during the remaining life of the option and the strike price at inception. The assumptions, which were uncertain and required a degree of judgment, included primarily S&P Index volatility, forward interest rate projections, estimated index dividend payout, and leverage. At September 30, 2017 and December 31, 2016, there were no options tied to the S&P Index outstanding.
Servicing assets
Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.
79
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Impaired Loans
Impaired loans are carried at the present value of expected future cash flows using the loan’s existing rate in a discounted cash flow calculation, or the fair value of the collateral if the loan is collateral-dependent. Expected cash flows are based on internal inputs reflecting expected default rates on contractual cash flows. This method of estimating fair value does not incorporate the exit-price concept of fair value described in ASC 820-10 and would generally result in a higher value than the exit-price approach. For loans measured using the estimated fair value of collateral less costs to sell, fair value is generally determined based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations, in accordance with the provisions of ASC 310-10-35 less disposition costs. Currently, the associated loans considered impaired are classified as Level 3.
Foreclosed real estate
Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price option or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.
85
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other repossessed assets
Other repossessed assets include repossessed automobiles. The fair value of the repossessed automobiles may be determined using internal valuation and an external appraisal. These repossessed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.
Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:
| September 30, 2017 | ||||||||||
| Fair Value Measurements | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale | $ | - |
| $ | 613,423 |
| $ | - |
| $ | 613,423 |
Trading securities |
| - |
|
| 284 |
|
| - |
|
| 284 |
Money market investments |
| 6,530 |
|
| - |
|
| - |
|
| 6,530 |
Derivative assets |
| - |
|
| 809 |
|
| - |
|
| 809 |
Servicing assets |
| - |
|
| - |
|
| 9,818 |
|
| 9,818 |
Derivative liabilities |
| - |
|
| (1,677) |
|
| - |
|
| (1,677) |
| $ | 6,530 |
| $ | 612,839 |
| $ | 9,818 |
| $ | 629,187 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 67,788 |
| $ | 67,788 |
Foreclosed real estate |
| - |
|
| - |
|
| 47,275 |
|
| 47,275 |
Other repossessed assets |
| - |
|
| - |
|
| 3,829 |
|
| 3,829 |
| $ | - |
| $ | - |
| $ | 118,892 |
| $ | 118,892 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||
| Fair Value Measurements | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale | $ | - |
| $ | 751,484 |
| $ | - |
| $ | 751,484 |
Trading securities |
| - |
|
| 347 |
|
| - |
|
| 347 |
Money market investments |
| 5,606 |
|
| - |
|
| - |
|
| 5,606 |
Derivative assets |
| - |
|
| 1,330 |
|
| - |
|
| 1,330 |
Servicing assets |
| - |
|
| - |
|
| 9,858 |
|
| 9,858 |
Derivative liabilities |
| - |
|
| (2,437) |
|
| - |
|
| (2,437) |
| $ | 5,606 |
| $ | 750,724 |
| $ | 9,858 |
| $ | 766,188 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 54,289 |
| $ | 54,289 |
Foreclosed real estate |
| - |
|
| - |
|
| 47,520 |
|
| 47,520 |
Other repossessed assets |
| - |
|
| - |
|
| 3,224 |
|
| 3,224 |
| $ | - |
| $ | - |
| $ | 105,033 |
| $ | 105,033 |
|
|
|
|
|
|
|
|
|
|
|
|
86
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 ine-month periods ended September 30, 2017 and 2016:
| Quarter Ended September 30, 2017 | |
| Servicing | |
Level 3 Instruments Only | assets | |
| (In thousands) | |
Balance at beginning of period | $ | 9,866 |
New instruments acquired |
| 429 |
Principal repayments |
| (152) |
Changes in fair value of servicing assets |
| (325) |
Balance at end of period | $ | 9,818 |
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | |
| Servicing | |
Level 3 Instruments Only | assets | |
| (In thousands) | |
Balance at beginning of period | $ | 9,858 |
New instruments acquired |
| 1,503 |
Principal repayments |
| (478) |
Changes in fair value of servicing assets |
| (1,065) |
Balance at end of period | $ | 9,818 |
|
|
|
| September 30, 2018 | ||||||||||
| Fair Value Measurements | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale | $ | - |
| $ | 848,552 |
| $ | - |
| $ | 848,552 |
Trading securities |
| - |
|
| 405 |
|
| - |
|
| 405 |
Money market investments |
| 5,805 |
|
| - |
|
| - |
|
| 5,805 |
Derivative assets |
| - |
|
| 1,265 |
|
| - |
|
| 1,265 |
Servicing assets |
| - |
|
| - |
|
| 10,866 |
|
| 10,866 |
Derivative liabilities |
| - |
|
| (622) |
|
| - |
|
| (622) |
| $ | 5,805 |
| $ | 849,600 |
| $ | 10,866 |
| $ | 866,271 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 69,639 |
| $ | 69,639 |
Foreclosed real estate |
| - |
|
| - |
|
| 37,868 |
|
| 37,868 |
Other repossessed assets |
| - |
|
| - |
|
| 4,146 |
|
| 4,146 |
| $ | - |
| $ | - |
| $ | 111,653 |
| $ | 111,653 |
|
|
|
|
|
|
|
|
|
|
|
|
8780
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Quarter Ended September, 2016 | ||||||||||
| Derivative |
|
|
|
| Derivative |
|
|
| ||
| asset |
|
|
|
| liability |
|
|
| ||
| (S&P |
|
|
|
| (S&P |
|
|
| ||
| Purchased |
|
| Servicing |
| Embedded |
|
|
| ||
Level 3 Instruments Only | Options) |
|
| assets |
| Options) |
| Total | |||
| (In thousands) | ||||||||||
Balance at beginning of period | $ | 187 |
| $ | 7,932 |
| $ | (181) |
| $ | 7,938 |
Gains (losses) included in earnings |
| (187) |
|
| - |
|
| 181 |
|
| (6) |
New instruments acquired |
| - |
|
| 466 |
|
| - |
|
| 466 |
Principal repayments |
| - |
|
| (123) |
|
| (1) |
|
| (124) |
Amortization |
| - |
|
| - |
|
| 1 |
|
| 1 |
Changes in fair value of servicing assets |
| - |
|
| 118 |
|
| - |
|
| 118 |
Balance at end of period | $ | - |
| $ | 8,393 |
| $ | - |
| $ | 8,393 |
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September, 2016 | ||||||||||
| Derivative |
|
|
|
| Derivative |
| ||||
| asset |
|
|
|
| liability |
| ||||
| (S&P |
|
|
|
| (S&P |
| ||||
| Purchased |
|
| Servicing |
|
| Embedded |
| |||
Level 3 Instruments Only | Options) |
|
| assets |
|
| Options) |
| Total | ||
| (In thousands) | ||||||||||
Balance at beginning of period | $ | 1,170 |
| $ | 7,455 |
| $ | (1,095) |
| $ | 7,530 |
Gains (losses) included in earnings |
| (1,170) |
|
| - |
|
| 1,067 |
|
| (103) |
New instruments acquired |
| - |
|
| 1,740 |
|
| - |
|
| 1,740 |
Principal repayments |
| - |
|
| (347) |
|
| - |
|
| (347) |
Amortization |
| - |
|
| - |
|
| 28 |
|
| 28 |
Changes in fair value of servicing assets |
| - |
|
| (455) |
|
| - |
|
| (455) |
Balance at end of period | $ | - |
| $ | 8,393 |
| $ | - |
| $ | 8,393 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | ||||||||||
| Fair Value Measurements | ||||||||||
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
| (In thousands) | ||||||||||
Recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Investment securities available-for-sale | $ | - |
| $ | 645,797 |
| $ | - |
| $ | 645,797 |
Trading securities |
| - |
|
| 191 |
|
| - |
|
| 191 |
Money market investments |
| 7,021 |
|
| - |
|
| - |
|
| 7,021 |
Derivative assets |
| - |
|
| 771 |
|
| - |
|
| 771 |
Servicing assets |
| - |
|
| - |
|
| 9,821 |
|
| 9,821 |
Derivative liabilities |
| - |
|
| (1,281) |
|
| - |
|
| (1,281) |
| $ | 7,021 |
| $ | 645,478 |
| $ | 9,821 |
| $ | 662,320 |
Non-recurring fair value measurements: |
|
|
|
|
|
|
|
|
|
|
|
Impaired commercial loans | $ | - |
| $ | - |
| $ | 72,285 |
| $ | 72,285 |
Foreclosed real estate |
| - |
|
| - |
|
| 44,174 |
|
| 44,174 |
Other repossessed assets |
| - |
|
| - |
|
| 3,548 |
|
| 3,548 |
| $ | - |
| $ | - |
| $ | 120,007 |
| $ | 120,007 |
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, 2018 and 2017:
| Servicing assets | ||||
| Quarter Ended September 30, | ||||
Level 3 Instruments Only | 2018 |
| 2017 | ||
| (In thousands) | ||||
Balance at beginning of period | $ | 10,829 |
| $ | 9,866 |
New instruments acquired |
| 417 |
|
| 429 |
Principal repayments |
| (184) |
|
| (152) |
Changes in fair value of servicing assets |
| (196) |
|
| (325) |
Balance at end of period | $ | 10,866 |
| $ | 9,818 |
|
|
|
|
|
|
|
|
|
|
|
|
| Servicing assets | ||||
| Nine-Month Period Ended September 30, | ||||
Level 3 Instruments Only | 2018 |
| 2017 | ||
| (In thousands) | ||||
Balance at beginning of period | $ | 9,821 |
| $ | 9,858 |
New instruments acquired |
| 1,158 |
|
| 1,503 |
Principal repayments |
| (593) |
|
| (478) |
Changes in fair value of servicing assets |
| 480 |
|
| (1,065) |
Balance at end of period | $ | 10,866 |
| $ | 9,818 |
|
|
|
|
|
|
|
|
|
|
|
|
During the quarters and nine-month periods ended September 30, 20172018 and 2016,2017, 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.
8881
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The table below presents quantitative information for all assets and liabilities measured at fair value on a recurring and non-recurring basis using significant unobservable inputs (Level 3) at September 30, 2017:2018:
|
| September 30, 2017 |
| September 30, 2018 | ||||||||||||||
|
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range | ||
|
| (In thousands) |
|
|
|
|
|
|
| (In thousands) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Servicing assets |
| $ | 9,818 |
| Cash flow valuation |
| Constant prepayment rate |
| 4.22% - 9.11% |
| $ | 10,866 |
| Cash flow valuation |
| Constant prepayment rate |
| 4.45% -8.33% |
|
|
|
|
|
| Discount rate |
| 10.00% - 12.00% |
|
|
|
|
| Discount rate |
| 10.00% - 12.00% | ||
Collateral dependant impaired loans |
| $ | 24,025 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 22.20% - 36.20% | |||||||||
Collateral dependent impaired loans |
| $ | 30,522 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 17.20% - 31.20% | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other non-collateral dependant impaired loans |
| $ | 43,763 |
| Cash flow valuation |
| Discount rate |
| 4.15% - 10.50% | |||||||||
Other non-collateral dependent impaired loans |
| $ | 39,117 |
| Cash flow valuation |
| Discount rate |
| 4.25% - 11.00% | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Foreclosed real estate |
| $ | 47,275 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 22.20% - 36.20% |
| $ | 37,868 |
| Fair value of property or collateral |
| Appraised value less disposition costs |
| 17.20% - 31.20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Other repossessed assets |
| $ | 3,829 |
| Fair value of property or collateral |
| Estimated net realizable value less disposition costs |
| 34.00% - 66.00% |
| $ | 4,146 |
| Fair value of property or collateral |
| Estimated net realizable value less disposition costs |
| 36.00% - 64.00% |
Information about Sensitivity to Changes in Significant Unobservable Inputs
Servicing assets – The significant unobservable inputs used in the fair value measurement of Oriental’s servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.
Fair Value of Financial Instruments
The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of Oriental.
The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer relationships of retail deposits, and premises and equipment.
8982
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The estimated fair value and carrying value of Oriental’s financial instruments at September 30, 20172018 and December 31, 20162017 is as follows:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||||||||||||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||||||||||||||
| Fair |
| Carrying |
| Fair |
| Carrying | Fair |
| Carrying |
| Fair |
| Carrying | ||||||||
| Value |
| Value |
| Value |
| Value | Value |
| Value |
| Value |
| Value | ||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||
Level 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents | $ | 720,726 |
| $ | 720,726 |
| $ | 510,439 |
| $ | 510,439 | $ | 543,750 |
| $ | 543,750 |
| $ | 485,203 |
| $ | 485,203 |
Restricted cash | $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 | $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 |
| $ | 3,030 |
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trading securities | $ | 284 |
| $ | 284 |
| $ | 347 |
| $ | 347 | $ | 405 |
| $ | 405 |
| $ | 191 |
| $ | 191 |
Investment securities available-for-sale | $ | 613,423 |
| $ | 613,423 |
| $ | 751,484 |
| $ | 751,484 | $ | 848,552 |
| $ | 848,552 |
| $ | 645,797 |
| $ | 645,797 |
Investment securities held-to-maturity | $ | 525,830 |
| $ | 530,178 |
| $ | 592,763 |
| $ | 599,884 | $ | 425,066 |
| $ | 444,679 |
| $ | 497,681 |
| $ | 506,064 |
Federal Home Loan Bank (FHLB) stock | $ | 14,016 |
| $ | 14,016 |
| $ | 10,793 |
| $ | 10,793 | $ | 12,461 |
| $ | 12,461 |
| $ | 13,995 |
| $ | 13,995 |
Other investments | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 3 | $ | 3 |
| $ | 3 |
| $ | 3 |
| $ | 3 |
Derivative assets | $ | 809 |
| $ | 809 |
| $ | 1,330 |
| $ | 1,330 | $ | 1,265 |
| $ | 1,265 |
| $ | 771 |
| $ | 771 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivative liabilities | $ | 1,677 |
| $ | 1,677 |
| $ | 2,437 |
| $ | 2,437 | $ | 622 |
| $ | 622 |
| $ | 1,281 |
| $ | 1,281 |
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans (including loans held-for-sale) | $ | 3,854,106 |
| $ | 3,964,572 |
| $ | 3,917,340 |
| $ | 4,147,692 | $ | 4,016,912 |
| $ | 4,352,980 |
| $ | 3,842,907 |
| $ | 4,056,329 |
FDIC indemnification asset | $ | - |
| $ | - |
| $ | 8,669 |
| $ | 14,411 | |||||||||||
Accrued interest receivable | $ | 22,736 |
| $ | 22,736 |
| $ | 20,227 |
| $ | 20,227 | $ | 33,452 |
| $ | 33,452 |
| $ | 49,969 |
| $ | 49,969 |
Servicing assets | $ | 9,818 |
| $ | 9,818 |
| $ | 9,858 |
| $ | 9,858 | $ | 10,866 |
| $ | 10,866 |
| $ | 9,821 |
| $ | 9,821 |
Accounts receivable and other assets | $ | 37,443 |
| $ | 37,443 |
| $ | 46,525 |
| $ | 46,525 | $ | 37,951 |
| $ | 37,951 |
| $ | 41,898 |
| $ | 41,898 |
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Deposits | $ | 4,809,945 |
| $ | 4,826,404 |
| $ | 4,644,629 |
| $ | 4,664,487 | $ | 5,057,209 |
| $ | 5,088,993 |
| $ | 4,782,197 |
| $ | 4,799,482 |
Securities sold under agreements to repurchase | $ | 281,786 |
| $ | 283,080 |
| $ | 651,898 |
| $ | 653,756 | $ | 375,345 |
| $ | 378,237 |
| $ | 191,104 |
| $ | 192,869 |
Advances from FHLB | $ | 100,249 |
| $ | 100,091 |
| $ | 106,422 |
| $ | 105,454 | $ | 74,331 |
| $ | 73,531 |
| $ | 99,509 |
| $ | 99,643 |
Other borrowings | $ | - |
| $ | - |
| $ | 61 |
| $ | 61 | $ | 192 |
| $ | 192 |
| $ | 153 |
| $ | 153 |
Subordinated capital notes | $ | 31,938 |
| $ | 36,083 |
| $ | 30,230 |
| $ | 36,083 | $ | 33,369 |
| $ | 36,083 |
| $ | 33,080 |
| $ | 36,083 |
Accrued expenses and other liabilities | $ | 86,766 |
| $ | 86,766 |
| $ | 95,370 |
| $ | 95,370 | $ | 80,448 |
| $ | 80,448 |
| $ | 86,791 |
| $ | 86,791 |
90
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following methods and assumptions were used to estimate the fair values of significant financial instruments at September 30, 20172018 and December 31, 2016:2017:
• Cash and cash equivalents (including money market investments and time deposits with other banks), restricted cash, accrued interest receivable, accounts receivable and other assets and accrued expenses and other liabilities 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 the FDIC indemnification asset represented the present value of the net estimated cash payments expected to be received from the FDIC for future losses on covered assets based on the credit assumptions on estimated cash flows for each covered asset and the loss sharing percentages. The FDIC shared-loss agreements were terminated on February 6, 2017. Such termination takes into account the anticipated reimbursements over the life of the shared-loss agreements and the true-up payment liability of the Bank anticipated at the end of the ten year term of the single family shared-loss agreement. Therefore, at June 30, 2017, Oriental had no FDIC indemnification asset.
• The fair value of servicing asset is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.
• 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)held-for-sale and non-performing loans) is based on the exit market price, which is estimated by segregating by type, such as mortgage, commercial, consumer, auto and leasing. Each loan segment is further segmented into fixed and adjustable interest rates and by performing and non-performing categories.rates. The fair value of performing loans is calculated by discounting contractual cash flows, adjusted for prepayment estimates (voluntary and involuntary), if any, using estimated current market discount rates that reflect the credit and interest rate risk inherent in the loan. This fair value is not currently an indication of an exit price as that type of assumption could result in a different fair value estimate. Non-performing loans have been valued at the carrying amounts.
• The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.
• The fair value of long-term borrowings, which include securities sold under agreements to repurchase, advances from FHLB, and subordinated capital notes is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.
9184
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 22 – BANKING AND FINANCIAL SERVICE REVENUES
The following table presents the major categories of banking and financial service revenues for the quarters and nine-month periods ended September 30, 2018 and 2017:
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
|
| (In thousands) | ||||||||||
Banking service revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Checking accounts fees |
| $ | 1,502 |
| $ | 1,767 |
| $ | 4,386 |
| $ | 5,470 |
Savings accounts fees |
|
| 161 |
|
| 152 |
|
| 473 |
|
| 470 |
Electronic banking fees |
|
| 8,104 |
|
| 6,851 |
|
| 23,960 |
|
| 22,211 |
Credit life commissions |
|
| 142 |
|
| 127 |
|
| 401 |
|
| 430 |
Branch service commissions |
|
| 365 |
|
| 82 |
|
| 1,089 |
|
| 333 |
Servicing and other loan fees |
|
| 334 |
|
| 771 |
|
| 1,554 |
|
| 1,560 |
International fees |
|
| 185 |
|
| 170 |
|
| 534 |
|
| 519 |
Miscellaneous income |
|
| 4 |
|
| 3 |
|
| 7 |
|
| 14 |
Total banking service revenues |
|
| 10,797 |
|
| 9,923 |
|
| 32,404 |
|
| 31,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Wealth management revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Insurance income |
|
| 1,654 |
|
| 1,278 |
|
| 4,298 |
|
| 4,378 |
Broker fees |
|
| 1,941 |
|
| 1,675 |
|
| 5,387 |
|
| 5,345 |
Trust fees |
|
| 2,541 |
|
| 2,840 |
|
| 8,138 |
|
| 8,187 |
Retirement plan and administration fees |
|
| 271 |
|
| 223 |
|
| 856 |
|
| 808 |
Investment banking fees |
|
| - |
|
| - |
|
| 9 |
|
| 29 |
Total wealth management revenue |
|
| 6,407 |
|
| 6,016 |
|
| 18,688 |
|
| 18,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net servicing fees |
|
| 1,059 |
|
| 925 |
|
| 4,130 |
|
| 2,931 |
Net gains on sale of mortgage loans and valuation |
|
| 103 |
|
| 275 |
|
| 182 |
|
| 760 |
Other |
|
| 80 |
|
| 74 |
|
| (325) |
|
| (871) |
Total mortgage banking activities |
|
| 1,242 |
|
| 1,274 |
|
| 3,987 |
|
| 2,820 |
Total banking and financial service revenues |
| $ | 18,446 |
| $ | 17,213 |
| $ | 55,079 |
| $ | 52,574 |
85
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Oriental segregates its businesses into the following major reportable segments of business: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of the products were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. These factors are reviewed on a periodical basis and may change if the conditions warrant.
Banking includes the Bank’s branches and traditional banking products such as deposits and commercial, consumer and mortgage loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for Oriental’s own portfolio. As part of its mortgage banking activities, Oriental may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.
Wealth Management is comprised of the Bank’s trust division, Oriental Financial Services, Oriental Insurance, and OPC. The core operations of this segment are financial planning, money management and investment banking, brokerage services, insurance sales activity, corporate and individual trust and retirement services, as well as retirement plan administration services.
The Treasury segment encompasses all of Oriental’s asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings. Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices.
9286
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 September 30, 20172018 and 2016:2017:
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated |
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 82,162 |
| $ | 13 |
| $ | 8,180 |
| $ | 90,355 |
| $ | - |
| $ | 90,355 | $ | 83,664 |
| $ | 9 |
| $ | 10,464 |
| $ | 94,137 |
| $ | - |
| $ | 94,137 |
Interest expense |
| (6,342) |
|
| - |
|
| (3,535) |
|
| (9,877) |
|
| - |
|
| (9,877) |
| (7,701) |
|
| - |
|
| (4,159) |
|
| (11,860) |
|
| - |
|
| (11,860) |
Net interest income |
| 75,820 |
|
| 13 |
|
| 4,645 |
|
| 80,478 |
|
| - |
|
| 80,478 |
| 75,963 |
|
| 9 |
|
| 6,305 |
|
| 82,277 |
|
| - |
|
| 82,277 |
Provision for loan and lease losses |
| (44,042) |
| - |
| - |
| (44,042) |
| - |
| (44,042) |
| (14,478) |
| - |
| (123) |
| (14,601) |
| - |
| (14,601) | ||||||||||
Non-interest income |
| 10,384 |
| 6,695 |
| 833 |
| 17,912 |
| - |
| 17,912 |
| 12,157 |
| 6,463 |
| - |
| 18,620 |
| - |
| 18,620 | ||||||||||
Non-interest expenses |
| (43,819) |
| (5,048) |
| (1,602) |
| (50,469) |
| - |
| (50,469) |
| (46,049) |
| (3,720) |
| (1,172) |
| (50,941) |
| - |
| (50,941) | ||||||||||
Intersegment revenue |
| 431 |
| - |
| - |
| 431 |
| (431) |
| - |
| 616 |
| - |
| - |
| 616 |
| (616) |
| - | ||||||||||
Intersegment expenses |
| - |
|
| (324) |
|
| (107) |
|
| (431) |
|
| 431 |
|
| - |
| - |
|
| (273) |
|
| (343) |
|
| (616) |
|
| 616 |
|
| - |
Income before income taxes | $ | (1,226) |
| $ | 1,336 |
| $ | 3,769 |
| $ | 3,879 |
| $ | - |
| $ | 3,879 | $ | 28,209 |
| $ | 2,479 |
| $ | 4,667 |
| $ | 35,355 |
| $ | - |
| $ | 35,355 |
Income tax expenses (benefit) |
| (475) |
|
| 521 |
|
| 514 |
|
| 560 |
|
| - |
|
| 560 | |||||||||||||||||
Income tax expense |
| 11,001 |
|
| 967 |
|
| 287 |
|
| 12,255 |
|
| - |
|
| 12,255 | |||||||||||||||||
Net income | $ | (751) |
| $ | 815 |
| $ | 3,255 |
| $ | 3,319 |
| $ | - |
| $ | 3,319 | $ | 17,208 |
| $ | 1,512 |
| $ | 4,380 |
| $ | 23,100 |
| $ | - |
| $ | 23,100 |
Total assets | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 | $ | 6,156,500 |
| $ | 25,243 |
| $ | 1,459,682 |
| $ | 7,641,425 |
| $ | (984,751) |
| $ | 6,656,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Quarter Ended September 30, 2016 | Quarter Ended September 30, 2017 | ||||||||||||||||||||||||||||||||
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated |
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 82,564 |
| $ | 15 |
| $ | 8,005 |
| $ | 90,584 |
| $ | - |
| $ | 90,584 | $ | 82,162 |
| $ | 13 |
| $ | 8,180 |
| $ | 90,355 |
| $ | - |
| $ | 90,355 |
Interest expense |
| (6,733) |
|
| - |
|
| (6,924) |
|
| (13,657) |
|
| - |
|
| (13,657) |
| (6,342) |
|
| - |
|
| (3,535) |
|
| (9,877) |
|
| - |
|
| (9,877) |
Net interest income |
| 75,831 |
|
| 15 |
|
| 1,081 |
|
| 76,927 |
|
| - |
|
| 76,927 |
| 75,820 |
|
| 13 |
|
| 4,645 |
|
| 80,478 |
|
| - |
|
| 80,478 |
Provision for loan and lease losses |
| (23,469) |
| - |
| - |
| (23,469) |
| - |
| (23,469) |
| (44,042) |
| - |
| - |
| (44,042) |
| - |
| (44,042) | ||||||||||
Non-interest income |
| 8,918 |
| 6,379 |
| 4,918 |
| 20,215 |
| - |
| 20,215 |
| 10,384 |
| 6,695 |
| 833 |
| 17,912 |
| - |
| 17,912 | ||||||||||
Non-interest expenses |
| (50,095) |
| (3,757) |
| (1,074) |
| (54,926) |
| - |
| (54,926) |
| (43,819) |
| (5,048) |
| (1,602) |
| (50,469) |
| - |
| (50,469) | ||||||||||
Intersegment revenue |
| 375 |
| - |
| 86 |
| 461 |
| (461) |
| - |
| 431 |
| - |
| - |
| 431 |
| (431) |
| - | ||||||||||
Intersegment expenses |
| (86) |
|
| (272) |
|
| (103) |
|
| (461) |
|
| 461 |
|
| - |
| - |
|
| (324) |
|
| (107) |
|
| (431) |
|
| 431 |
|
| - |
Income before income taxes | $ | 11,474 |
| $ | 2,365 |
| $ | 4,908 |
| $ | 18,747 |
| $ | - |
| $ | 18,747 | $ | (1,226) |
| $ | 1,336 |
| $ | 3,769 |
| $ | 3,879 |
| $ | - |
| $ | 3,879 |
Income tax expenses (benefit) |
| 4,475 |
|
| 922 |
|
| (1,770) |
|
| 3,627 |
|
| - |
|
| 3,627 | |||||||||||||||||
Income tax expense (benefit) |
| (475) |
|
| 521 |
|
| 514 |
|
| 560 |
|
| - |
|
| 560 | |||||||||||||||||
Net income | $ | 6,999 |
| $ | 1,443 |
| $ | 6,678 |
| $ | 15,120 |
| $ | - |
| $ | 15,120 | $ | (751) |
| $ | 815 |
| $ | 3,255 |
| $ | 3,319 |
| $ | - |
| $ | 3,319 |
Total assets | $ | 5,715,958 |
| $ | 19,433 |
| $ | 1,801,752 |
| $ | 7,537,143 |
|
| (945,030) |
| $ | 6,592,113 | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9387
OFG BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated |
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | ||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 236,754 |
| $ | 43 |
| $ | 25,676 |
| $ | 262,473 |
| $ | - |
| $ | 262,473 | $ | 236,171 |
| $ | 35 |
| $ | 29,107 |
| $ | 265,313 |
| $ | - |
| $ | 265,313 |
Interest expense |
| (19,976) |
|
| - |
|
| (11,838) |
|
| (31,814) |
|
| - |
|
| (31,814) |
| (21,123) |
|
| - |
|
| (10,331) |
|
| (31,454) |
|
| - |
|
| (31,454) |
Net interest income |
| 216,778 |
|
| 43 |
|
| 13,838 |
|
| 230,659 |
|
| - |
|
| 230,659 |
| 215,048 |
|
| 35 |
|
| 18,776 |
|
| 233,859 |
|
| - |
|
| 233,859 |
Provision for loan and lease losses, net |
| (88,210) |
| - |
| (22) |
| (88,232) |
| - |
| (88,232) |
| (44,677) |
| - |
| (131) |
| (44,808) |
| - |
| (44,808) | ||||||||||
Non-interest income, net |
| 35,387 |
| 18,952 |
| 7,533 |
| 61,872 |
| - |
| 61,872 | ||||||||||||||||||||||
Non-interest income |
| 36,590 |
| 19,219 |
| 28 |
| 55,837 |
| - |
| 55,837 | ||||||||||||||||||||||
Non-interest expenses |
| (137,275) |
| (13,368) |
| (4,326) |
| (154,969) |
| - |
| (154,969) |
| (140,239) |
| (12,288) |
| (2,835) |
| (155,362) |
| - |
| (155,362) | ||||||||||
Intersegment revenue |
| 1,243 |
| - |
| 140 |
| 1,383 |
| (1,383) |
| - |
| 1,519 |
| - |
| - |
| 1,519 |
| (1,519) |
| - | ||||||||||
Intersegment expenses |
| (140) |
|
| (889) |
|
| (354) |
|
| (1,383) |
|
| 1,383 |
|
| - |
| - |
|
| (660) |
|
| (859) |
|
| (1,519) |
|
| 1,519 |
|
| - |
Income before income taxes | $ | 27,783 |
| $ | 4,738 |
| $ | 16,809 |
| $ | 49,330 |
| $ | - |
| $ | 49,330 | $ | 68,241 |
| $ | 6,306 |
| $ | 14,979 |
| $ | 89,526 |
| $ | - |
| $ | 89,526 |
Income tax expense |
| 10,836 |
|
| 1,848 |
|
| 1,073 |
|
| 13,756 |
|
| - |
|
| 13,757 |
| 26,614 |
|
| 2,459 |
|
| 787 |
|
| 29,860 |
|
| - |
|
| 29,860 |
Net income | $ | 16,947 |
| $ | 2,890 |
| $ | 15,736 |
| $ | 35,574 |
| $ | - |
| $ | 35,573 | $ | 41,627 |
| $ | 3,847 |
| $ | 14,192 |
| $ | 59,666 |
| $ | - |
| $ | 59,666 |
Total assets | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 | $ | 6,156,500 |
| $ | 25,243 |
| $ | 1,459,682 |
| $ | 7,641,425 |
| $ | (984,751) |
| $ | 6,656,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||
| Nine-Month Period Ended September 30, 2016 | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | (In thousands) | |||||||||||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Interest income | $ | 243,389 |
| $ | 49 |
| $ | 26,360 |
| $ | 269,798 |
| $ | - |
| $ | 269,798 | $ | 236,754 |
| $ | 43 |
| $ | 25,676 |
| $ | 262,473 |
| $ | - |
| $ | 262,473 |
Interest expense |
| (20,840) |
|
| - |
|
| (23,744) |
|
| (44,584) |
|
| - |
|
| (44,584) |
| (19,976) |
|
| - |
|
| (11,838) |
|
| (31,814) |
|
| - |
|
| (31,814) |
Net interest income |
| 222,549 |
|
| 49 |
|
| 2,616 |
|
| 225,214 |
|
| - |
|
| 225,214 |
| 216,778 |
|
| 43 |
|
| 13,838 |
|
| 230,659 |
|
| - |
|
| 230,659 |
Provision for loan and lease losses, net |
| (51,703) |
| - |
| - |
| (51,703) |
| - |
| (51,703) |
| (88,210) |
| - |
| (22) |
| (88,232) |
| - |
| (88,232) | ||||||||||
Non-interest income, net |
| 24,927 |
| 19,309 |
| 4,637 |
| 48,873 |
| - |
| 48,873 | ||||||||||||||||||||||
Non-interest income |
| 35,387 |
| 18,952 |
| 7,533 |
| 61,872 |
| - |
| 61,872 | ||||||||||||||||||||||
Non-interest expenses |
| (147,881) |
| (11,610) |
| (4,117) |
| (163,608) |
| - |
| (163,608) |
| (137,275) |
| (13,368) |
| (4,326) |
| (154,969) |
| - |
| (154,969) | ||||||||||
Intersegment revenue |
| 1,162 |
| - |
| 235 |
| 1,397 |
| (1,397) |
| - |
| 1,243 |
| - |
| 140 |
| 1,383 |
| (1,383) |
| - | ||||||||||
Intersegment expenses |
| (235) |
|
| (849) |
|
| (313) |
|
| (1,397) |
|
| 1,397 |
|
| - |
| (140) |
|
| (889) |
|
| (354) |
|
| (1,383) |
|
| 1,383 |
|
| - |
Income (loss) before income taxes | $ | 48,819 |
| $ | 6,899 |
| $ | 3,058 |
| $ | 58,776 |
| $ | - |
| $ | 58,776 | |||||||||||||||||
Income tax expenses (benefit) |
| 19,039 |
|
| 2,691 |
|
| (6,584) |
|
| 15,146 |
|
| - |
|
| 15,146 | |||||||||||||||||
Income before income taxes | $ | 27,783 |
| $ | 4,738 |
| $ | 16,809 |
| $ | 49,330 |
| $ | - |
| $ | 49,330 | |||||||||||||||||
Income tax expense |
| 10,836 |
|
| 1,848 |
|
| 1,073 |
|
| 13,757 |
|
| - |
|
| 13,757 | |||||||||||||||||
Net income | $ | 29,780 |
| $ | 4,208 |
| $ | 9,642 |
| $ | 43,630 |
| $ | - |
| $ | 43,630 | $ | 16,947 |
| $ | 2,890 |
| $ | 15,736 |
| $ | 35,573 |
| $ | - |
| $ | 35,573 |
Total assets | $ | 5,715,958 |
| $ | 19,433 |
| $ | 1,801,752 |
| $ | 7,537,143 |
| $ | (945,030) |
| $ | 6,592,113 | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On October 6, 2017,During the Bank organized and began operating a new entity, OFG USA LLC ("OFG USA"), to provide commercial lending inthird quarter of 2018, Oriental announced the US mainland. The Bank made a capital contribution to OFG USAmandatory conversion of $50.0 millionits Series C preferred stock into common stock, effective on October 23, 2017.
22, 2018. Each share of Series C preferred stock was converted into 86.4225 shares of common stock. There were 84,000 shares of Series C preferred stock outstanding, all of which were converted to common stock on October 22, 2018. 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.
9488
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, 20162017 (the “2016“2017 Form 10-K”), for discussion of the uncertainties, risks and assumptions associated with these statements.
Oriental is a publicly-owned financial holding company that provides a full range of banking and financial services through its subsidiaries, including commercial, consumer, auto and mortgage lending; checking and savings accounts; financial planning, insurance and securities brokerage services; and corporate and individual trust and retirement services. Oriental operates through three major business segments: Banking, Wealth Management, and Treasury, and distinguishes itself based on quality service. Oriental has 4839 branches in Puerto Rico and a subsidiary in Boca Raton, Florida.Florida, and a non-bank operating subsidiary in Cornelius, North Carolina. Oriental’s long-term goal is to strengthen its banking and financial services franchise by expanding its lending businesses, increasing the level of integration in the marketing and delivery of banking and financial services, maintaining effective asset-liability management, growing non-interest revenue from banking and financial services, and improving operating efficiencies.
Oriental’s diversified mix of businesses and products generates both the interest income traditionally associated with a banking institution and non-interest income traditionally associated with a financial services institution (generated by such businesses as securities brokerage, fiduciary services, investment banking, insurance agency, and retirement plan administration). Although all of these businesses, to varying degrees, are affected by interest rate and financial market fluctuations and other external factors, Oriental’s commitment is to continue producing a balanced and growing revenue stream.
89
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” of our 20162017 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 20162017 Form 10-K, we identified the followingseveral accounting policies as critical, including the following, because they require significant judgments and assumptions about highly complex and inherently uncertain matters and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition:
· Loans and lease receivablesFair value measurements of financial instruments
· AllowanceInterest on loans and allowance for loan and lease losses
· Financial instrumentsAccounting for purchased credit-impaired loan
We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing conditions. Management has reviewed and approved these critical accounting policies and has discussed its judgments and assumptions with the Audit Committee of our Board of Directors. DuringAs part of Oriental’s continuous enhancement to the thirdallowance for loan and lease losses methodology, during the quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effectended June 30, 2018, an assessment of the hurricanes on Oriental'slook-back period and historical loss factor was performed for auto and leasing, consumer, and commercial loan portfolio is difficult to predict at this time, management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.portfolios. The framework for the analysis was based on our current ALLL methodologythe trends observed and their relation with additional considerations accordingthe economic cycle as of the period ended June 30, 2018. As a result, for a segment of the corporate and institutional portfolio, the look-back period was revised to 60 months from 48 months. For the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment. Forremaining commercial portfolios, Oriental contacted its clients to evaluate the impactlook-back period was maintained at 48 months. This determination was made considering the modification of certain criteria during the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of
95
repayment. This criterion wasquarter used to model adjusted PDsclassified commercial loans within the Bank’s current segmentation policy Also, for auto and LGDs considering internalconsumer portfolios, a look back period of 24 months was maintained. For the residential mortgages portfolio, the factor was reviewed to 24 months from 12 months. In addition, during the quarter ended June 30, 2018, an assessment of environmental factors was performed for commercial, auto, and external sources of information available to support our estimation process and output. For retail portfolios (residential mortgage, consumer and auto), management established assumptions based onportfolios. As a result, the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (for all portfolios) and the location of the collateral (for residential loans). The documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental willenvironmental factors continue to assessreflect our assessment of the impact to our customersportfolio, taking into consideration the current evolution of the portfolio and our businesses as aexpected impact, due to recent economic developments, changes in values of collateral and delinquencies, among others. These changes in the allowance for loan and lease losses’ look-back period and the result of the hurricanesassessment in economic factors for the commercial, auto, and refine our estimatesconsumer portfolios are considered a change in accounting estimate as more information becomes available.per ASC 250-10 provisions, where adjustments should be made prospectively. Other thanApart 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 20162017 Form 10-K.
9690
OVERVIEW OF FINANCIAL PERFORMANCE
SELECTED FINANCIAL DATA | SELECTED FINANCIAL DATA | SELECTED FINANCIAL DATA | ||||||||||||||||||||||||||||
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| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||||||||||
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| Variance |
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| Variance |
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| Variance |
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| Variance |
| 2017 |
| 2016 |
| % |
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % |
| 2018 |
| 2017 |
| % | ||||||||
EARNINGS DATA: | (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||||||||||||||||||
Interest income | $ | 90,355 |
| $ | 90,584 |
| -0.3% |
| $ | 262,473 |
| $ | 269,798 |
| -2.7% | $ | 94,137 |
| $ | 90,355 |
| 4.2% |
| $ | 265,313 |
| $ | 262,473 |
| 1.1% |
Interest expense |
| 9,877 |
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| 13,657 |
| -27.7% |
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| 31,814 |
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| 44,584 |
| -28.6% |
| 11,860 |
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| 9,877 |
| 20.1% |
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| 31,454 |
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| 31,814 |
| -1.1% |
Net interest income |
| 80,478 |
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| 76,927 |
| 4.6% |
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| 230,659 |
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| 225,214 |
| 2.4% |
| 82,277 |
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| 80,478 |
| 2.2% |
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| 233,859 |
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| 230,659 |
| 1.4% |
Provision for loan and lease losses, net |
| 44,042 |
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| 23,469 |
| 87.7% |
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| 88,232 |
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| 51,703 |
| 70.7% |
| 14,601 |
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| 44,042 |
| -66.8% |
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| 44,808 |
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| 88,232 |
| -49.2% |
Net interest income after provision for loan and lease losses |
| 36,436 |
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| 53,458 |
| -31.8% |
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| 142,427 |
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| 173,511 |
| -17.9% |
| 67,676 |
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| 36,436 |
| 85.7% |
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| 189,051 |
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| 142,427 |
| 32.7% |
Non-interest income |
| 17,912 |
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| 20,215 |
| -11.4% |
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| 61,872 |
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| 48,873 |
| 26.6% |
| 18,620 |
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| 17,912 |
| 4.0% |
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| 55,837 |
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| 61,872 |
| -9.8% |
Non-interest expenses |
| 50,469 |
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| 54,926 |
| -8.1% |
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| 154,969 |
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| 163,608 |
| -5.3% |
| 50,941 |
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| 50,469 |
| 0.9% |
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| 155,362 |
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| 154,969 |
| 0.3% |
Income before taxes |
| 3,879 |
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| 18,747 |
| -79.3% |
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| 49,330 |
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| 58,776 |
| -16.1% |
| 35,355 |
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| 3,879 |
| 811.4% |
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| 89,526 |
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| 49,330 |
| 81.5% |
Income tax expense |
| 560 |
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| 3,627 |
| -84.6% |
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| 13,757 |
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| 15,146 |
| -9.2% |
| 12,255 |
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| 560 |
| 2088.4% |
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| 29,860 |
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| 13,757 |
| 117.1% |
Net income |
| 3,319 |
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| 15,120 |
| -78.0% |
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| 35,573 |
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| 43,630 |
| -18.5% |
| 23,100 |
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| 3,319 |
| 596.0% |
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| 59,666 |
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| 35,573 |
| 67.7% |
Less: dividends on preferred stock |
| (3,465) |
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| (3,465) |
| 0.0% |
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| (10,396) |
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| (10,396) |
| 0.0% |
| (3,466) |
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| (3,465) |
| 0.0% |
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| (10,396) |
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| (10,396) |
| 0.0% |
Income available to common shareholders | $ | (146) |
| $ | 11,655 |
| -101.3% |
| $ | 25,177 |
| $ | 33,234 |
| -24.2% | |||||||||||||||
Income (loss) available to common shareholders | $ | 19,634 |
| $ | (146) |
| 13547.9% |
| $ | 49,270 |
| $ | 25,177 |
| 95.7% | |||||||||||||||
PER SHARE DATA: |
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Basic | $ | - |
| $ | 0.27 |
| -100.0% |
| $ | 0.57 |
| $ | 0.76 |
| -25.0% | $ | 0.45 |
| $ | - |
| 100.0% |
| $ | 1.12 |
| $ | 0.57 |
| 96.5% |
Diluted | $ | - |
| $ | 0.26 |
| -100.0% |
| $ | 0.56 |
| $ | 0.76 |
| -26.3% | $ | 0.42 |
| $ | - |
| 100.0% |
| $ | 1.07 |
| $ | 0.56 |
| 91.1% |
Average common shares outstanding |
| 43,947 |
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| 43,926 |
| 0.0% |
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| 43,937 |
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| 43,913 |
| 0.1% |
| 43,996 |
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| 43,947 |
| 0.1% |
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| 43,975 |
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| 43,937 |
| 0.1% |
Average common shares outstanding and equivalents |
| 51,102 |
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| 51,111 |
| 0.0% |
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| 51,095 |
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| 51,091 |
| 0.0% |
| 51,464 |
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| 51,102 |
| 0.7% |
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| 51,344 |
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| 51,095 |
| 0.5% |
Cash dividends declared per common share | $ | 0.06 |
| $ | 0.06 |
| 0.0% |
| $ | 0.18 |
| $ | 0.18 |
| 0.0% | $ | 0.06 |
| $ | 0.06 |
| 0.0% |
| $ | 0.18 |
| $ | 0.18 |
| 0.0% |
Cash dividends declared on common shares | $ | 2,638 |
| $ | 2,637 |
| 0.0% |
| $ | 7,915 |
| $ | 7,909 |
| 0.1% | $ | 2,641 |
| $ | 2,638 |
| 0.1% |
| $ | 7,919 |
| $ | 7,915 |
| 0.1% |
PERFORMANCE RATIOS: |
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Return on average assets (ROA) |
| 0.22% |
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| 0.91% |
| -75.8% |
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| 0.76% |
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| 0.85% |
| -10.6% |
| 1.42% |
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| 0.22% |
| 545.5% |
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| 1.25% |
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| 0.76% |
| 64.5% |
Return on average tangible common equity |
| -0.08% |
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| 7.06% |
| -101.1% |
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| 4.94% |
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| 6.82% |
| -27.6% |
| 10.94% |
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| -0.08% |
| 13775.0% |
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| 9.30% |
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| 4.94% |
| 88.3% |
Return on average common equity (ROE) |
| -0.07% |
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| 6.19% |
| -101.1% |
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| 4.35% |
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| 5.96% |
| -27.0% |
| 9.72% |
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| -0.07% |
| 13985.7% |
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| 8.25% |
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| 4.35% |
| 89.7% |
Equity-to-assets ratio |
| 14.91% |
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| 14.03% |
| 6.3% |
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| 14.91% |
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| 14.03% |
| 6.3% | |||||||||||||||
Efficiency ratio |
| 51.66% |
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| 57.69% |
| -10.5% |
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| 54.71% |
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| 58.66% |
| -6.7% |
| 50.58% |
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| 51.66% |
| -2.1% |
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| 53.77% |
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| 54.71% |
| -1.7% |
Interest rate spread |
| 5.56% |
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| 4.87% |
| 14.2% |
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| 5.16% |
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| 4.68% |
| 10.3% |
| 5.29% |
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| 5.56% |
| -4.9% |
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| 5.20% |
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| 5.16% |
| 0.8% |
Interest rate margin |
| 5.64% |
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| 4.95% |
| 13.9% |
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| 5.25% |
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| 4.77% |
| 10.1% |
| 5.38% |
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| 5.64% |
| -4.6% |
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| 5.28% |
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| 5.25% |
| 0.6% |
9791
SELECTED FINANCIAL DATA - (Continued) |
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| September 30, |
| December 31, |
| Variance | September 30, |
| December 31, |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
PERIOD END BALANCES AND CAPITAL RATIOS: | (In thousands, except per share data) | (In thousands, except per share data) | ||||||||||||
Investments and loans |
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Investment securities | $ | 1,157,904 |
| $ | 1,362,511 |
| -15.0% | $ | 1,306,100 |
| $ | 1,166,050 |
| 12.0% |
Loans and leases, net |
| 3,964,572 |
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| 4,147,692 |
| -4.4% |
| 4,352,980 |
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| 4,056,329 |
| 7.3% |
Total investments and loans | $ | 5,122,476 |
| $ | 5,510,203 |
| -7.0% | $ | 5,659,080 |
| $ | 5,222,379 |
| 8.4% |
Deposits and borrowings |
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Deposits | $ | 4,826,404 |
| $ | 4,664,487 |
| 3.5% | $ | 5,088,993 |
| $ | 4,799,482 |
| 6.0% |
Securities sold under agreements to repurchase |
| 283,080 |
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| 653,756 |
| -56.7% |
| 378,237 |
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| 192,869 |
| 96.1% |
Other borrowings |
| 136,174 |
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| 141,598 |
| -3.8% |
| 109,806 |
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| 135,879 |
| -19.2% |
Total deposits and borrowings | $ | 5,245,658 |
| $ | 5,459,841 |
| -3.9% | $ | 5,577,036 |
| $ | 5,128,230 |
| 8.8% |
Stockholders’ equity |
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Preferred stock | $ | 176,000 |
| $ | 176,000 |
| 0.0% | $ | 176,000 |
| $ | 176,000 |
| 0.0% |
Common stock |
| 52,626 |
|
| 52,626 |
| 0.0% |
| 52,626 |
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| 52,626 |
| 0.0% |
Additional paid-in capital |
| 541,302 |
|
| 540,948 |
| 0.1% |
| 542,078 |
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| 541,600 |
| 0.1% |
Legal surplus |
| 79,795 |
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| 76,293 |
| 4.6% |
| 87,563 |
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| 81,454 |
| 7.5% |
Retained earnings |
| 191,567 |
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| 177,808 |
| 7.7% |
| 236,120 |
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| 200,878 |
| 17.5% |
Treasury stock, at cost |
| (104,502) |
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| (104,860) |
| 0.3% |
| (103,706) |
|
| (104,502) |
| 0.8% |
Accumulated other comprehensive (loss) income |
| 842 |
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| 1,596 |
| -47.2% | |||||||
Accumulated other comprehensive (loss) |
| (20,795) |
|
| (2,949) |
| -605.2% | |||||||
Total stockholders' equity | $ | 937,630 |
| $ | 920,411 |
| 1.9% | $ | 969,886 |
| $ | 945,107 |
| 2.6% |
Per share data |
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Book value per common share | $ | 17.56 |
| $ | 17.18 |
| 2.2% | $ | 18.27 |
| $ | 17.73 |
| 3.0% |
Tangible book value per common share | $ | 15.49 |
| $ | 15.08 |
| 2.7% | $ | 16.23 |
| $ | 15.67 |
| 3.6% |
Market price at end of period | $ | 9.15 |
| $ | 13.10 |
| -30.2% | $ | 16.15 |
| $ | 9.40 |
| 71.8% |
Capital ratios |
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Leverage capital |
| 14.07% |
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| 12.99% |
| 8.3% |
| 13.93% |
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| 13.92% |
| 0.1% |
Common equity Tier 1 capital ratio |
| 14.89% |
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| 14.05% |
| 6.0% |
| 14.38% |
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| 14.59% |
| -1.5% |
Tier 1 risk-based capital |
| 19.53% |
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| 18.35% |
| 6.4% |
| 18.55% |
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| 19.05% |
| -2.6% |
Total risk-based capital |
| 20.82% |
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| 19.62% |
| 6.1% |
| 19.84% |
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| 20.34% |
| -2.5% |
Equity to assets ratio |
| 14.57% |
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| 15.27% |
| -4.6% | |||||||
Financial assets managed |
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Trust assets managed | $ | 2,956,684 |
| $ | 2,850,494 |
| 3.7% | $ | 2,973,457 |
| $ | 3,039,998 |
| -2.2% |
Broker-dealer assets gathered | $ | 2,272,284 |
| $ | 2,350,718 |
| -3.3% | $ | 2,312,245 |
| $ | 2,250,460 |
| 2.7% |
9892
FINANCIAL HIGHLIGHTS OF THE THIRD QUARTER OF 2017
Our resultsEarnings per share for the quarter ended September 30, 2018 is up more than 20% sequentially and significantly better year over year. All financial metrics continued to build strong momentum going forward.
Key to our success has been the effectiveness of strategies we have been working on for years. This has enabled us to get closer to our commercial and retail customers through value-added service, increased convenience and highly efficient technology.
With customer count up 4% year over year, we are achieving growth in part through increased customer adoption of automated and interactive teller machines, and online and mobile channels.
Until now, economic activity has been driven primarily by businesses and consumers rebuilding. We believe businesses are starting to gain new confidence to invest and expand going forward. We are excited about our prospects for continued growth.
Summary of third quarter of 2017 were significantly impacted by hurricanes Irma and Maria. The intensity and extent of damages caused by hurricane Maria, less than two weeks after hurricane Irma left over a million Puerto Rico residents without electric power, is unprecedented in Puerto Rico. Many areas and towns throughout Puerto Rico were devastated by hurricane Maria and at least 51 fatalities are attributed to this natural disaster. Over a month after the hurricanes, most of Puerto Rico remains without electricity, many businesses are unable to operate, and government authorities are still struggling to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays.
In response to the magnitude of this natural disaster and its general adverse effects on our customers, we offered a moratorium to defer payments on our personal, auto, mortgage and commercial loan portfolios. Any eligible customer may decline the deferment by continuing to make its regularly scheduled loan payments.
Our moratorium covers all personal and auto loan customers that are not over 89 days delinquent in their loans. It consists of an optional automatic deferment of three scheduled monthly payments of principal and interest. For any customer that does not opt out, the deferred payments are due and payable in three consecutive installments after the loan’s maturity date. Such loans continue to accrue interest on their principal balances during the moratorium at their respective rates, and such customers are not charged late payment fees in connection with the deferment, nor is their credit history affected thereby.
For commercial loans, we offered a one-month optional deferment in the payment of principal and interest for loans that are not over 30 days past due, and up to two additional one-month deferrals in certain cases. For conforming mortgage loans (Rural, VA, FNMA, FHA and FHLMC), we offered a three-month optional deferment of principal and interest due and payable in January 2018 and for credit card balances that were not over 29 days past due as of August 31, 2017, we offered a waiver of minimum payments for October, November and December 2017.
· Net loss available to shareholders totaled $146 thousand. This compares to $13.6 million, or $0.30 per share fully diluted, in the second quarter of 2017All key performance metrics improved, including net interest margin at 5.38%, return on average assets at 1.42%, return on average tangible common stockholders’ equity at 10.94%, and $11.7 million, or $0.26 per share fully diluted, in the year ago quarter.efficiency ratio at 50.58%.
· Based on preliminary assessmentsIncreased profitability was driven by new loan production of $354 million, higher average loan yields of 7.55%, annualized increase in average loan balances of 9.7%, and lower non-interest expenses.
·Core deposit balances of $4.56 billion rose 3.2% from the impact of the hurricanes on its credit portfolio, thirdprior quarter 2017 results included an additional loan loss provision of $27.0 million.as customer count grew 1.2% sequentially and 4.0% year over year.
· Tangible book value per common share was $15.92 and tangible common equity ratio was 11.26%, with common equity Tier 1of $16.23 at September 30, 2018 increased 6.8% annualized from June 30, 2018.
·Regulatory capital ratiois expected to benefit by $84.0 million as a result of 15.48%, Tier 1 risk-based capital ratiothe mandatory conversion, effective October 22, 2018, of 20.09%, and total risk-based capital ratio of 21.37%.
Adjusted results of operations – Non-GAAP financial measures
Oriental prepares its consolidated financial statements using accounting principles generally accepted in the United States (“U.S. GAAP” or the “reported basis”8.750% Non-Cumulative Convertible Perpetual Preferred Stock, Series C (the “Series C Preferred Stock”). In addition to analyzing Oriental’s results on a reported basis, management monitors “Adjusted net income” of Oriental and excludes the impact of certain transactions
on the results of its operations. During the third quarter of 2017, in the span of two weeks in September, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Oriental has excluded the impact of these events for its "Adjusted net income". Adjusted net income is a non-GAAP financial measure. Management believes that Adjusted net income and other non-GAAP financial measures provides meaningful information about the underlying performance of Oriental’s ongoing operations.
Refer to the following table for a reconciliation of the reported results to the Adjusted net income and other non-GAAP financial measures for the quarter and nine-month period ended September 30, 2017. Non-GAAP financial measures used by Oriental may not be comparable to similarly named Non-GAAP financial measures used by other companies.
9993
Reconciliation to Non-GAAP Financial Measures adjusted to exclude the effect of hurricanes Irma and Maria: |
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| Quarter Ended September 30, 2017 |
| Nine-Month Period Ended September 30, 2017 | ||
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| (Dollars in thousands) | ||||
U.S GAAP Net income |
| $ | 3,319 |
| $ | 35,573 |
Non-GAAP adjustments: |
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Additional loan loss provision from Hurricanes Irma and María |
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| 27,000 |
|
| 27,000 |
Income tax effect |
|
| (8,038) |
|
| (8,038) |
Adjusted net income (Non-GAAAP) |
|
| 22,281 |
|
| 54,535 |
Less: dividends on preferred stock |
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| (3,465) |
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| (10,396) |
Adjusted income available to common shareholders (Non-GAAAP) |
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| 18,816 |
|
| 44,139 |
Plus: Effect of assumed conversion of the convertible preferred stock |
|
| 1,838 |
|
| 1,838 |
|
| $ | 20,654 |
| $ | 45,977 |
Average common shares outstanding and equivalents |
|
| 51,102 |
|
| 51,095 |
Adjusted earnings per common share - diluted (Non-GAAP) |
| $ | 0.40 |
| $ | 0.90 |
|
|
|
|
|
|
|
Adjusted net income (Non-GAAAP) |
| $ | 22,281 |
| $ | 54,535 |
Average assets, excluding hurricane loan provision |
| $ | 6,048,021 |
| $ | 6,231,725 |
Return on average assets, excluding hurricane loan provision (Non-GAAP) |
|
| 1.47% |
|
| 1.17% |
|
|
|
|
|
|
|
Adjusted income available to common shareholders (Non-GAAAP) |
| $ | 18,816 |
| $ | 44,139 |
Average tangible common stockholders' equity, excluding hurricane loan provision |
| $ | 690,203 |
| $ | 679,867 |
Return on average tangible common stockholders' equity, excluding hurricane loan provision (Non-GAAP) |
|
| 10.90% |
|
| 8.66% |
·Excluding the aforementioned impact of the hurricanes (Non-GAAP):
☐ Adjusted net income available to shareholders totaled $18.8 million or $0.40 per share fully diluted. That’s an increase of $0.10 per share or 33.0% from the second quarter of 2017 and of $0.14 or 53.8% from the year ago quarter.
☐ Return on average assets was 1.47% and return on average tangible common equity was 10.90% – 38 and 289 basis points higher, respectively, than the second quarter of 2017.
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 September 30, 20172018 and 2016:2017:
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE QUARTERS ENDED SEPTEMBER 30, 2018 AND 2017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| September |
| September |
| September |
| September |
| September |
| September | ||||
| 2018 |
| 2017 |
| 2018 | 2017 |
| 2018 |
| 2017 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 94,137 |
| $ | 90,355 |
| 6.16% |
| 6.33% |
| $ | 6,066,821 |
| $ | 5,658,953 |
Tax equivalent adjustment |
| 1,934 |
|
| 1,084 |
| 0.13% |
| 0.08% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 96,071 |
|
| 91,439 |
| 6.29% |
| 6.41% |
|
| 6,066,821 |
|
| 5,658,953 |
Interest-bearing liabilities |
| 11,860 |
|
| 9,877 |
| 0.87% |
| 0.77% |
|
| 5,437,442 |
|
| 5,071,668 |
Tax equivalent net interest income / spread |
| 84,211 |
|
| 81,562 |
| 5.42% | �� | 5.64% |
|
| 629,379 |
|
| 587,285 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.55% |
| 5.72% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 8,445 |
|
| 6,584 |
| 2.52% |
| 2.23% |
|
| 1,327,180 |
|
| 1,170,714 |
Interest bearing cash and money market investments |
| 1,676 |
|
| 1,304 |
| 2.05% |
| 1.21% |
|
| 325,058 |
|
| 426,197 |
Total investments |
| 10,121 |
|
| 7,888 |
| 2.43% |
| 1.96% |
|
| 1,652,238 |
|
| 1,596,911 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 8,781 |
|
| 9,303 |
| 5.18% |
| 5.33% |
|
| 672,526 |
|
| 692,782 |
Commercial |
| 23,411 |
|
| 21,337 |
| 6.14% |
| 6.83% |
|
| 1,513,556 |
|
| 1,239,390 |
Consumer |
| 9,254 |
|
| 8,423 |
| 11.38% |
| 11.10% |
|
| 322,553 |
|
| 301,121 |
Auto and leasing |
| 25,397 |
|
| 19,876 |
| 9.61% |
| 9.51% |
|
| 1,048,617 |
|
| 829,446 |
Total non-acquired loans |
| 66,843 |
|
| 58,939 |
| 7.46% |
| 7.63% |
|
| 3,557,252 |
|
| 3,062,739 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 6,722 |
|
| 7,434 |
| 5.29% |
| 5.54% |
|
| 503,978 |
|
| 532,664 |
Commercial |
| 3,984 |
|
| 7,084 |
| 9.21% |
| 12.60% |
|
| 171,661 |
|
| 222,978 |
Consumer |
| 2,239 |
|
| 2,602 |
| 16.51% |
| 17.32% |
|
| 53,803 |
|
| 59,596 |
Auto |
| 743 |
|
| 2,069 |
| 8.13% |
| 10.48% |
|
| 36,263 |
|
| 78,358 |
Total acquired BBVAPR loans |
| 13,688 |
|
| 19,189 |
| 7.09% |
| 8.52% |
|
| 765,705 |
|
| 893,596 |
Acquired Eurobank |
| 3,485 |
|
| 4,339 |
| 15.09% |
| 16.29% |
|
| 91,626 |
|
| 105,707 |
Total loans |
| 84,016 |
|
| 82,467 |
| 7.55% |
| 8.05% |
|
| 4,414,583 |
|
| 4,062,042 |
Total interest-earning assets |
| 94,137 |
|
| 90,355 |
| 6.16% |
| 6.33% |
|
| 6,066,821 |
|
| 5,658,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10094
TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | |||||||||||||||
FOR THE QUARTERS ENDED SEPTEMBER 30, 2017 AND 2016 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
| Average rate |
| Average balance | ||||||||||
| September |
| September |
| September |
| September |
| September |
| September | ||||
| 2017 |
| 2016 |
| 2017 | 2016 |
| 2017 |
| 2016 | |||||
| (Dollars in thousands) | ||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets | $ | 90,355 |
| $ | 90,585 |
| 6.33% |
| 5.83% |
| $ | 5,658,953 |
| $ | 6,169,251 |
Tax equivalent adjustment |
| 1,084 |
|
| 1,163 |
| 0.08% |
| 0.07% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 91,439 |
|
| 91,748 |
| 6.41% |
| 5.90% |
|
| 5,658,953 |
|
| 6,169,251 |
Interest-bearing liabilities |
| 9,877 |
|
| 13,658 |
| 0.77% |
| 0.96% |
|
| 5,071,668 |
|
| 5,639,609 |
Tax equivalent net interest income / spread |
| 81,562 |
|
| 78,090 |
| 5.64% |
| 4.94% |
|
| 587,285 |
|
| 529,642 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.72% |
| 5.02% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities |
| 6,584 |
|
| 7,319 |
| 2.23% |
| 2.25% |
|
| 1,170,714 |
|
| 1,293,251 |
Interest bearing cash and money market investments |
| 1,304 |
|
| 661 |
| 1.21% |
| 0.55% |
|
| 426,197 |
|
| 477,968 |
Total investments |
| 7,888 |
|
| 7,980 |
| 1.96% |
| 1.79% |
|
| 1,596,911 |
|
| 1,771,219 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 9,303 |
|
| 10,159 |
| 5.33% |
| 5.40% |
|
| 692,782 |
|
| 746,613 |
Commercial |
| 21,337 |
|
| 15,976 |
| 6.83% |
| 4.44% |
|
| 1,239,390 |
|
| 1,426,216 |
Consumer |
| 8,423 |
|
| 7,044 |
| 11.10% |
| 10.77% |
|
| 301,121 |
|
| 259,535 |
Auto and leasing |
| 19,876 |
|
| 17,390 |
| 9.51% |
| 9.48% |
|
| 829,446 |
|
| 727,727 |
Total non-acquired loans |
| 58,939 |
|
| 50,569 |
| 7.63% |
| 6.35% |
|
| 3,062,739 |
|
| 3,160,091 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 7,434 |
|
| 8,197 |
| 5.54% |
| 5.60% |
|
| 532,664 |
|
| 580,786 |
Commercial |
| 7,084 |
|
| 6,732 |
| 12.60% |
| 9.40% |
|
| 222,978 |
|
| 284,225 |
Consumer |
| 2,602 |
|
| 2,993 |
| 17.32% |
| 18.02% |
|
| 59,596 |
|
| 65,902 |
Auto |
| 2,069 |
|
| 4,801 |
| 10.48% |
| 11.24% |
|
| 78,358 |
|
| 169,423 |
Total acquired BBVAPR loans |
| 19,189 |
|
| 22,723 |
| 8.52% |
| 8.19% |
|
| 893,596 |
|
| 1,100,336 |
Acquired Eurobank |
| 4,339 |
|
| 9,313 |
| 16.29% |
| 26.85% |
|
| 105,707 |
|
| 137,605 |
Total loans |
| 82,467 |
|
| 82,605 |
| 8.05% |
| 7.45% |
|
| 4,062,042 |
|
| 4,398,032 |
Total interest earning assets |
| 90,355 |
|
| 90,585 |
| 6.33% |
| 5.83% |
|
| 5,658,953 |
|
| 6,169,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest |
|
| Average rate |
| Average balance | ||||||||||
| September |
| September |
|
| September | September | September |
| September | ||||||
| 2018 |
| 2017 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||
| (Dollars in thousands) | |||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW Accounts |
| 1,196 |
|
| 880 |
|
| 0.43% |
| 0.34% |
|
| 1,096,023 |
|
| 1,024,480 |
Savings and money market |
| 1,571 |
|
| 1,426 |
|
| 0.51% |
| 0.50% |
|
| 1,211,693 |
|
| 1,142,338 |
Individual retirement accounts |
| 322 |
|
| 391 |
|
| 0.62% |
| 0.66% |
|
| 206,786 |
|
| 236,385 |
Retail certificates of deposits |
| 1,896 |
|
| 2,482 |
|
| 1.25% |
| 1.67% |
|
| 600,687 |
|
| 590,057 |
Total core deposits |
| 4,985 |
|
| 5,179 |
|
| 0.63% |
| 0.70% |
|
| 3,115,189 |
|
| 2,993,260 |
Institutional deposits |
| 678 |
|
| 29 |
|
| 1.22% |
| 0.05% |
|
| 219,651 |
|
| 226,468 |
Brokered deposits |
| 2,727 |
|
| 2,163 |
|
| 2.08% |
| 1.55% |
|
| 519,502 |
|
| 554,650 |
Total wholesale deposits |
| 3,405 |
|
| 2,192 |
|
| 1.83% |
| 1.14% |
|
| 739,153 |
|
| 781,118 |
|
| 8,390 |
|
| 7,371 |
|
| 0.86% |
| 0.77% |
|
| 3,854,342 |
|
| 3,774,378 |
Non-interest bearing deposits |
| - |
|
| - |
|
| 0.00% |
| 0.00% |
|
| 1,079,833 |
|
| 835,255 |
Core deposit intangible amortization |
| 215 |
|
| 230 |
|
| 0.00% |
| 0.00% |
|
| - |
|
| - |
Total deposits |
| 8,605 |
|
| 7,601 |
|
| 0.69% |
| 0.65% |
|
| 4,934,175 |
|
| 4,609,633 |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 2,242 |
|
| 1,282 |
|
| 2.28% |
| 1.56% |
|
| 390,225 |
|
| 325,201 |
Advances from FHLB and other borrowings |
| 517 |
|
| 596 |
|
| 2.67% |
| 2.35% |
|
| 76,960 |
|
| 100,751 |
Subordinated capital notes |
| 496 |
|
| 398 |
|
| 5.45% |
| 4.38% |
|
| 36,083 |
|
| 36,083 |
Total borrowings |
| 3,255 |
|
| 2,276 |
|
| 2.57% |
| 1.95% |
|
| 503,268 |
|
| 462,035 |
Total interest bearing liabilities |
| 11,860 |
|
| 9,877 |
|
| 0.87% |
| 0.77% |
|
| 5,437,443 |
|
| 5,071,668 |
Net interest income / spread | $ | 82,277 |
| $ | 80,478 |
|
| 5.29% |
| 5.56% |
|
|
|
|
|
|
Interest rate margin |
|
|
|
|
|
|
| 5.38% |
| 5.64% |
|
|
|
|
|
|
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
| $ | 629,379 |
| $ | 587,284 |
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
|
|
| 111.57% |
|
| 111.58% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C - CHANGES IN NET INTEREST INCOME DUE TO: |
|
|
|
|
|
|
| |||||||||
| Volume |
| Rate |
| Total |
|
|
|
|
|
|
|
| |||
| (In thousands) |
|
|
|
|
|
|
|
| |||||||
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments | $ | 273 |
| $ | 1,960 |
| $ | 2,233 |
|
|
|
|
|
|
|
|
Loans |
| 6,192 |
|
| (4,643) |
|
| 1,549 |
|
|
|
|
|
|
|
|
Total interest income |
| 6,465 |
|
| (2,683) |
|
| 3,782 |
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| 535 |
|
| 469 |
|
| 1,004 |
|
|
|
|
|
|
|
|
Repurchase agreements |
| 256 |
|
| 704 |
|
| 960 |
|
|
|
|
|
|
|
|
Other borrowings |
| (173) |
|
| 192 |
|
| 19 |
|
|
|
|
|
|
|
|
Total interest expense |
| 618 |
|
| 1,365 |
|
| 1,983 |
|
|
|
|
|
|
|
|
Net Interest Income | $ | 5,847 |
| $ | (4,048) |
| $ | 1,799 |
|
|
|
|
|
|
|
|
101
| Interest |
|
| Average rate |
| Average balance | ||||||||||
| September |
| September |
|
| September | September | September |
| September | ||||||
| 2017 |
| 2016 |
|
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (Dollars in thousands) | |||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW Accounts |
| 880 |
|
| 1,314 |
|
| 0.34% |
| 0.42% |
|
| 1,024,480 |
|
| 1,243,640 |
Savings and money market |
| 1,426 |
|
| 1,351 |
|
| 0.50% |
| 0.48% |
|
| 1,142,338 |
|
| 1,113,649 |
Individual retirement accounts |
| 391 |
|
| 482 |
|
| 0.66% |
| 0.71% |
|
| 236,385 |
|
| 268,467 |
Retail certificates of deposits |
| 2,482 |
|
| 1,632 |
|
| 1.67% |
| 1.30% |
|
| 590,057 |
|
| 497,917 |
Total core deposits |
| 5,179 |
|
| 4,779 |
|
| 0.70% |
| 0.62% |
|
| 2,993,260 |
|
| 3,123,673 |
Institutional deposits |
| 29 |
|
| 621 |
|
| 0.05% |
| 1.00% |
|
| 226,468 |
|
| 247,521 |
Brokered deposits |
| 2,163 |
|
| 1,751 |
|
| 1.55% |
| 1.26% |
|
| 554,650 |
|
| 549,371 |
Total wholesale deposits |
| 2,192 |
|
| 2,372 |
|
| 1.14% |
| 1.20% |
|
| 781,118 |
|
| 796,892 |
|
| 7,371 |
|
| 7,151 |
|
| 0.77% |
| 0.72% |
|
| 3,774,378 |
|
| 3,920,565 |
Non-interest bearing deposits |
| - |
|
| - |
|
| 0.00% |
| 0.00% |
|
| 835,255 |
|
| 801,833 |
Deposits fair value premium amortization |
| - |
|
| (78) |
|
| 0.00% |
| 0.00% |
|
| - |
|
| - |
Core deposit intangible amortization |
| 230 |
|
| 258 |
|
| 0.00% |
| 0.00% |
|
| - |
|
| - |
Total deposits |
| 7,601 |
|
| 7,331 |
|
| 0.65% |
| 0.62% |
|
| 4,609,633 |
|
| 4,722,398 |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 1,282 |
|
| 4,272 |
|
| 1.56% |
| 2.73% |
|
| 325,201 |
|
| 620,353 |
Advances from FHLB and other borrowings |
| 596 |
|
| 1,237 |
|
| 2.35% |
| 2.51% |
|
| 100,751 |
|
| 195,278 |
Subordinated capital notes |
| 398 |
|
| 818 |
|
| 4.38% |
| 3.19% |
|
| 36,083 |
|
| 101,581 |
Total borrowings |
| 2,276 |
|
| 6,327 |
|
| 1.95% |
| 2.74% |
|
| 462,035 |
|
| 917,212 |
Total interest bearing liabilities |
| 9,877 |
|
| 13,658 |
|
| 0.77% |
| 0.96% |
|
| 5,071,668 |
|
| 5,639,610 |
Net interest income / spread | $ | 80,478 |
| $ | 76,927 |
|
| 5.56% |
| 4.87% |
|
|
|
|
|
|
Interest rate margin |
|
|
|
|
|
|
| 5.64% |
| 4.95% |
|
|
|
|
|
|
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
| $ | 587,284 |
| $ | 529,641 |
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
|
|
| 111.58% |
|
| 109.39% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C - CHANGES IN NET INTEREST INCOME DUE TO: |
|
|
|
|
|
|
| |||||||||
| Volume |
| Rate |
| Total |
|
|
|
|
|
|
|
| |||
| (In thousands) |
|
|
|
|
|
|
|
| |||||||
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments | $ | (785) |
| $ | 693 |
| $ | (92) |
|
|
|
|
|
|
|
|
Loans |
| (7,986) |
|
| 7,848 |
|
| (138) |
|
|
|
|
|
|
|
|
Total interest income |
| (8,771) |
|
| 8,541 |
|
| (230) |
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
| (175) |
|
| 445 |
|
| 270 |
|
|
|
|
|
|
|
|
Repurchase agreements |
| (2,033) |
|
| (958) |
|
| (2,991) |
|
|
|
|
|
|
|
|
Other borrowings |
| (1,108) |
|
| 48 |
|
| (1,060) |
|
|
|
|
|
|
|
|
Total interest expense |
| (3,316) |
|
| (465) |
|
| (3,781) |
|
|
|
|
|
|
|
|
Net Interest Income | $ | (5,455) |
| $ | 9,006 |
| $ | 3,551 |
|
|
|
|
|
|
|
|
10295
TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | TABLE 1A - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE | ||||||||||||||||||||||||||||
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016 | ||||||||||||||||||||||||||||||
FOR THE NINE-MONTH PERIODS ENDED SEPTIEMBRE 30, 2018 AND 2017 | FOR THE NINE-MONTH PERIODS ENDED SEPTIEMBRE 30, 2018 AND 2017 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Interest |
| Average rate |
| Average balance | Interest |
| Average rate |
| Average balance | ||||||||||||||||||||
| September |
| September |
| September |
| September |
| September |
| September | September |
| September |
| September |
| September |
| September |
| September | ||||||||
| 2017 |
| 2016 |
| 2017 | 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 | 2017 |
| 2018 |
| 2017 | ||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||
A - TAX EQUIVALENT SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets | $ | 262,472 |
| $ | 269,799 |
| 5.97% |
| 5.71% |
| $ | 5,875,783 |
| $ | 6,290,862 | $ | 265,313 |
| $ | 262,472 |
| 5.99% |
| 5.97% |
| $ | 5,918,041 |
| $ | 5,875,784 |
Tax equivalent adjustment |
| 3,661 |
|
| 3,499 |
| 0.08% |
| 0.07% |
|
| - |
|
| - |
| 5,800 |
|
| 3,661 |
| 0.13% |
| 0.08% |
|
| - |
|
| - |
Interest-earning assets - tax equivalent |
| 266,133 |
|
| 273,298 |
| 6.05% |
| 5.78% |
|
| 5,875,783 |
|
| 6,290,862 |
| 271,113 |
|
| 266,133 |
| 6.12% |
| 6.05% |
|
| 5,918,041 |
|
| 5,875,784 |
Interest-bearing liabilities |
| 31,813 |
|
| 44,585 |
| 0.81% |
| 1.03% |
|
| 5,253,584 |
|
| 5,786,977 |
| 31,454 |
|
| 31,813 |
| 0.79% |
| 0.81% |
|
| 5,295,170 |
|
| 5,253,584 |
Tax equivalent net interest income / spread |
| 234,320 |
|
| 228,713 |
| 5.24% |
| 4.75% |
|
| 622,199 |
|
| 503,885 |
| 239,659 |
|
| 234,320 |
| 5.33% |
| 5.24% |
|
| 622,871 |
|
| 622,200 |
Tax equivalent interest rate margin |
|
|
|
|
|
| 5.33% |
| 4.84% |
|
|
|
|
|
|
|
|
|
|
|
| 5.46% |
| 5.33% |
|
|
|
|
|
|
B - NORMAL SPREAD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Investment securities |
| 21,996 |
| 24,420 |
| 2.29% |
| 2.41% |
| 1,287,594 |
| 1,351,078 |
| 24,131 |
| 22,014 |
| 2.48% |
| 2.29% |
| 1,299,357 |
| 1,287,919 | ||||||
Trading securities |
| 18 |
| 28 |
| 7.40% |
| 11.51% |
| 325 |
| 324 | ||||||||||||||||||
Interest bearing cash and money market investments |
| 3,104 |
|
| 1,919 |
| 0.99% |
| 0.51% |
|
| 417,892 |
|
| 497,795 |
| 4,125 |
|
| 3,104 |
| 1.76% |
| 7.40% |
|
| 312,665 |
|
| 417,892 |
Total investments |
| 25,118 |
|
| 26,367 |
| 1.97% |
| 1.90% |
|
| 1,705,811 |
|
| 1,849,197 |
| 28,256 |
|
| 25,118 |
| 2.34% |
| 0.99% |
|
| 1,612,022 |
|
| 1,705,811 |
Non-acquired loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 28,298 |
| 29,615 |
| 5.40% |
| 5.27% |
| 701,039 |
| 748,755 |
| 26,539 |
| 28,298 |
| 5.23% |
| 5.40% |
| 678,334 |
| 701,039 | ||||||
Commercial |
| 54,023 |
| 47,214 |
| 5.79% |
| 4.40% |
| 1,247,249 |
| 1,428,499 |
| 62,207 |
| 54,023 |
| 5.89% |
| 5.79% |
| 1,412,108 |
| 1,247,249 | ||||||
Consumer |
| 24,146 |
| 19,778 |
| 11.09% |
| 10.68% |
| 291,140 |
| 246,641 |
| 26,519 |
| 24,146 |
| 11.16% |
| 11.09% |
| 317,673 |
| 291,140 | ||||||
Auto and leasing |
| 57,940 |
|
| 50,985 |
| 9.64% |
| 9.62% |
|
| 803,821 |
|
| 705,956 |
| 69,546 |
|
| 57,940 |
| 9.40% |
| 9.64% |
|
| 988,830 |
|
| 803,821 |
Total non-acquired loans |
| 164,407 |
|
| 147,592 |
| 7.22% |
| 6.28% |
|
| 3,043,249 |
|
| 3,129,851 |
| 184,811 |
|
| 164,407 |
| 7.27% |
| 7.22% |
|
| 3,396,945 |
|
| 3,043,249 |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mortgage |
| 22,921 |
| 24,798 |
| 5.05% |
| 5.59% |
| 606,636 |
| 591,401 |
| 20,710 |
| 22,921 |
| 5.39% |
| 5.05% |
| 514,076 |
| 606,636 | ||||||
Commercial |
| 16,617 |
| 20,985 |
| 9.14% |
| 8.94% |
| 243,183 |
| 312,571 |
| 11,273 |
| 16,617 |
| 7.66% |
| 9.14% |
| 196,810 |
| 243,183 | ||||||
Consumer |
| 8,381 |
| 9,283 |
| 18.47% |
| 18.17% |
| 60,669 |
| 68,076 |
| 6,964 |
| 8,381 |
| 16.79% |
| 18.47% |
| 55,454 |
| 60,669 | ||||||
Auto |
| 8,043 |
|
| 16,976 |
| 11.04% |
| 11.37% |
|
| 97,383 |
|
| 198,845 |
| 3,107 |
|
| 8,043 |
| 8.69% |
| 11.04% |
|
| 47,801 |
|
| 97,382 |
Total acquired BBVAPR loans |
| 55,962 |
|
| 72,042 |
| 7.42% |
| 8.20% |
|
| 1,007,871 |
|
| 1,170,893 |
| 42,054 |
|
| 55,962 |
| 6.91% |
| 7.42% |
|
| 814,141 |
|
| 1,007,870 |
Acquired Eurobank |
| 16,986 |
|
| 23,798 |
| 19.11% |
| 22.50% |
|
| 118,854 |
|
| 140,921 |
| 10,192 |
|
| 16,986 |
| 14.35% |
| 19.11% |
|
| 94,933 |
|
| 118,854 |
Total loans |
| 237,355 |
|
| 243,432 |
| 7.61% |
| 7.30% |
|
| 4,169,973 |
|
| 4,441,665 |
| 237,057 |
|
| 237,355 |
| 7.36% |
| 7.61% |
|
| 4,306,019 |
|
| 4,169,973 |
Total interest earning assets |
| 262,473 |
|
| 269,799 |
| 5.97% |
| 5.71% |
|
| 5,875,784 |
|
| 6,290,862 | |||||||||||||||
Total interest-earning assets |
| 265,313 |
|
| 262,473 |
| 5.99% |
| 5.97% |
|
| 5,918,041 |
|
| 5,875,784 |
10396
| Interest |
|
| Average rate |
| Average balance | Interest |
|
| Average rate |
| Average balance | ||||||||||||||||||||
| September |
| September |
| September |
| September |
| September |
| September | September |
| September |
| September |
| September |
| September |
| September | ||||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2017 |
| 2016 | 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2018 |
| 2017 | ||||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
NOW Accounts | $ | 2,972 |
| $ | 3,914 |
| 0.37% |
| 0.43% |
| $ | 1,065,419 |
| $ | 1,208,943 | $ | 3,064 |
| $ | 2,972 |
| 0.38% |
| 0.37% |
| $ | 1,069,341 |
| $ | 1,065,419 | ||
Savings and money market |
| 4,392 |
| 4,057 |
| 0.51% |
| 0.49% |
| 1,152,597 |
| 1,111,012 |
| 4,623 |
| 4,392 |
| 0.51% |
| 0.51% |
| 1,216,198 |
| 1,152,597 | ||||||||
Individual retirement accounts |
| 1,196 |
| 1,448 |
| 0.66% |
| 0.72% |
| 243,944 |
| 268,315 |
| 953 |
| 1,196 |
| 0.59% |
| 0.66% |
| 214,881 |
| 243,944 | ||||||||
Retail certificates of deposits |
| 5,902 |
|
| 4,446 |
| 1.39% |
| 1.28% |
|
| 567,853 |
|
| 461,685 |
| 5,515 |
|
| 5,902 |
| 1.24% |
| 1.39% |
|
| 596,366 |
|
| 567,853 | ||
Total core deposits |
| 14,462 |
|
| 13,865 |
| 0.65% |
| 0.64% |
|
| 3,029,813 |
|
| 3,049,955 |
| 14,155 |
|
| 14,462 |
| 0.65% |
| 0.65% |
|
| 3,096,786 |
|
| 3,029,813 | ||
Institutional deposits |
| 1,322 |
|
| 1,895 |
| 0.79% |
| 1.00% |
|
| 224,826 |
|
| 253,618 |
| 2,007 |
|
| 1,322 |
| 1.28% |
| 0.79% |
|
| 210,160 |
|
| 224,826 | ||
Brokered deposits |
| 6,132 |
|
| 5,555 |
| 1.44% |
| 1.17% |
|
| 568,207 |
|
| 631,643 |
| 6,748 |
|
| 6,132 |
| 1.86% |
| 1.44% |
|
| 485,832 |
|
| 568,207 | ||
Total wholesale deposits |
| 7,454 |
|
| 7,450 |
| 1.90% |
| 1.70% |
|
| 793,033 |
|
| 885,261 |
| 8,755 |
|
| 7,454 |
| 1.68% |
| 1.90% |
|
| 695,992 |
|
| 793,033 | ||
|
| 21,916 |
|
| 21,315 |
| 0.77% |
| 0.72% |
|
| 3,822,846 |
|
| 3,935,216 |
| 22,910 |
|
| 21,916 |
| 0.81% |
| 0.77% |
|
| 3,792,778 |
|
| 3,822,846 | ||
Non-interest bearing deposits |
| - |
|
| - |
| 0.00% |
| -0.06% |
|
| 834,325 |
| $ | 784,099 |
| - |
|
| - |
| 0.00% |
| 0.00% |
|
| 1,062,582 |
| $ | 834,325 | ||
Deposits fair value premium amortization |
| - |
| (268) |
| 0.00% |
| 0.00% |
| - |
| - | ||||||||||||||||||||
Core deposit intangible amortization |
| 690 |
|
| 775 |
| 0.00% |
| 0.00% |
|
| - |
|
| - |
| 644 |
|
| 690 |
| 0.00% |
| 0.00% |
|
| - |
|
| - | ||
Total deposits |
| 22,606 |
|
| 21,822 |
| 0.65% |
| 0.62% |
|
| 4,657,171 |
|
| 4,719,315 |
| 23,554 |
|
| 22,606 |
| 0.65% |
| 0.65% |
|
| 4,855,360 |
|
| 4,657,171 | ||
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Securities sold under agreements to repurchase |
| 6,260 |
| 14,629 |
| 1.83% |
| 2.86% |
| 456,523 |
| 682,326 |
| 5,159 |
| 6,260 |
| 2.08% |
| 1.83% |
| 332,215 |
| 456,523 | ||||||||
Advances from FHLB and other borrowings |
| 1,799 |
| 5,574 |
| 2.32% |
| 2.62% |
| 103,807 |
| 282,957 |
| 1,339 |
| 1,799 |
| 2.50% |
| 2.32% |
| 71,512 |
| 103,807 | ||||||||
Subordinated capital notes |
| 1,149 |
|
| 2,560 |
| 4.26% |
| 3.33% |
|
| 36,083 |
|
| 102,379 |
| 1,402 |
|
| 1,149 |
| 5.19% |
| 4.26% |
|
| 36,083 |
|
| 36,083 | ||
Total borrowings |
| 9,208 |
|
| 22,763 |
| 2.06% |
| 2.84% |
|
| 596,413 |
|
| 1,067,662 |
| 7,900 |
|
| 9,208 |
| 2.40% |
| 2.06% |
|
| 439,810 |
|
| 596,413 | ||
Total interest bearing liabilities |
| 31,814 |
|
| 44,585 |
| 0.81% |
| 1.03% |
|
| 5,253,584 |
|
| 5,786,977 | |||||||||||||||||
Total interest-bearing liabilities |
| 31,454 |
|
| 31,814 |
| 0.79% |
| 0.81% |
|
| 5,295,170 |
|
| 5,253,584 | |||||||||||||||||
Net interest income / spread | $ | 230,659 |
| $ | 225,214 |
| 5.16% |
| 4.68% |
|
|
|
|
|
| $ | 233,859 |
| $ | 230,659 |
| 5.20% |
| 5.16% |
|
|
|
|
|
| ||
Interest rate margin |
|
|
|
|
|
| 5.25% |
| 4.77% |
|
|
|
|
|
|
|
|
|
| 5.28% |
| 5.25% |
|
|
|
| ||||||
Excess of average interest-earning assets over average interest-bearing liabilities |
|
|
|
|
|
|
|
|
| $ | 622,199 |
| $ | 503,885 |
|
|
|
|
|
|
|
|
| $ | 622,872 |
| $ | 622,199 | ||||
Average interest-earning assets to average interest-bearing liabilities ratio |
|
|
|
|
|
|
|
|
|
| 111.84% |
|
| 108.71% |
|
|
|
|
|
|
|
|
|
| 111.76% |
|
| 111.84% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 | $ | (2,044) |
| $ | 795 |
| $ | (1,249) |
|
|
|
|
|
| $ | (1,381) |
| $ | 4,519 |
| $ | 3,138 |
|
|
|
|
|
| ||||
Loans |
| (16,473) |
|
| 10,395 |
|
| (6,078) |
|
|
|
|
|
|
| 5,284 |
|
| (5,582) |
|
| (298) |
|
|
|
|
|
| ||||
Total interest income |
| (18,517) |
|
| 11,190 |
|
| (7,327) |
|
|
|
|
|
|
| 3,903 |
|
| (1,063) |
|
| 2,840 |
|
|
|
|
|
| ||||
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Deposits |
| (287) |
| 1,070 |
| 783 |
|
|
|
|
|
|
| 962 |
| (14) |
| 948 |
|
|
|
|
|
| ||||||||
Repurchase agreements |
| (4,841) |
| (3,528) |
| (8,369) |
|
|
|
|
|
|
| (1,705) |
| 605 |
| (1,100) |
|
|
|
|
|
| ||||||||
Other borrowings |
| (5,181) |
|
| (5) |
|
| (5,186) |
|
|
|
|
|
|
| (682) |
|
| 474 |
|
| (208) |
|
|
|
|
|
| ||||
Total interest expense |
| (10,309) |
|
| (2,463) |
|
| (12,772) |
|
|
|
|
|
|
| (1,425) |
|
| 1,065 |
|
| (360) |
|
|
|
|
|
| ||||
Net Interest Income | $ | (8,208) |
| $ | 13,653 |
| $ | 5,445 |
|
|
|
|
|
| $ | 5,328 |
| $ | (2,128) |
| $ | 3,200 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10497
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 offor the quarters ended September 30, 20172018 and 20162017
Net interest income of $80.5$82.3 million increased $3.6$1.8 million from $76.9$80.5 million. Both interestInterest rate spread decreased 27 basis points to 5.29% from 5.56% and net interest margin increased 69decreased 26 basis points to 5.56% and5.38% from 5.64%, respectively, from 4.87% and 4.95%, respectively.. These increasesdecreases are mainly due to the net effect of a 50decrease of 17 basis point increasepoints in the average yield of interest-earningtotal interest earning assets from 5.83% to 6.33% and to a 19an increase of 10 basis point decrease in average costscost of interest-bearing liabilities from 0.96% to 0.77%.liabilities.
Net interest income was positively impacted by:increased as a result of:
· Higher interest income from originated loans of $8.4$7.9 million, reflecting the recognition of $4.8 million from the pay-off before maturity of a commercial loan previously classified as non-accrual, and from higher yieldsbalances in the commercial and retail loan portfolios;
·auto portfoliosThe recognition of $3.1 million in cost recoveries from the pay-off of the Puerto Rico Housing Finance Authority (PRHFA) included as interest income from acquired BBVAPR loans;
·A decrease in interest expenses from securities sold under agreements to repurchase due to decreases in volume an interest rate of $2.0 million and $1.0 million, respectively, mainly as a result of the repayment at maturity of (i) a $232.0 million repurchase agreement at 4.78% in March 2017 and of (ii) $160.4 million short-term repurchase agreements which were not renewed during the third quarter of 2017;; and
· A decreaseHigher interest income from investment of $2.2 million, reflecting increases in interest expenses from a decreaserates of $2.0 million and in other borrowings volume of $1.1 million as a result of the repayment at maturity of $72.9 million of short term FHLB advances during the third quarter of 2017.$273 thousand.
NetSuch increases in net interest income was adversely impactedwere partially offset by:
· A decrease of $8.5$6.4 million in the interest income from the acquired BBVAPR and Eurobank loan portfoliosloans as such loans continue to be repaid;
·A slight increaserepaid, and a decrease of $1.4 million in interest expenses from deposits of 3.7% to $7.6 million, reflecting lower volume balances by $175 thousand, offset by $445 thousand more in interest rates; andcost recoveries.
·A slight decrease in interest income from investments of 1.2% to $7.9 million, reflecting lower volume balances offset by higher yields on cash balances.
Comparison of nine-month periods ended September, 30,2018 and 2017 and 2016
Net interest income of $230.7$233.9 million increased $5.5$3.2 million from $225.2compared with $230.7 million. Both interestInterest rate spread increased 4 basis points from 5.16% to 5.20% and net interest margin increased 483 basis points both,from 5.25% to 5.16% and 5.25%, respectively, from 4.68% and 4.77%, respectively.5.28%. These increases are mainly due to the net effect of a 262 basis pointpoints increase in the average yield of interest-earning assets from 5.71%5.97% to 5.97%5.99% and to a 222 basis pointpoints decrease in average costs of interest-bearing liabilities from 1.03%0.81% to 0.81%.0.79%
Net interest income was positively impacted by:increased as a result of:
· Higher interest income from originated loans of $16.8$20.4 million, reflecting higher balances in the commercial, auto and consumer portfolios;
·Higher interest income from investment of $3.1 million, reflecting an increase in interest rates of $4.5 million, partially offset by a decrease in volume of $1.4 million; and
105
· Lower interest expenses on repurchasesrepurchase agreements and other borrowings of $13.6$1.3 million as a result of the repayment of high cost repurchase agreements.agreements and FHLB advances.
NetSuch increase in net interest income was adversely impactedpartially offset by:
· A decrease of $22.9$20.7 million in the interest income from acquired loans as such loans continue to be repaid;
·Arepaid and a decrease in interest income from investments by $1.2cost recoveries of $2.7 million due to lower volume; and.
98
·A slight increase in interest expenses from deposits by $784 thousand.
TABLE 2 - NON-INTEREST INCOME SUMMARY | TABLE 2 - NON-INTEREST INCOME SUMMARY |
|
|
|
|
|
| TABLE 2 - NON-INTEREST INCOME SUMMARY |
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||||||||||
| 2017 |
| 2016 |
| Variance |
| 2017 |
| 2016 |
| Variance | 2018 |
| 2017 |
| Variance |
| 2018 |
| 2017 |
| Variance | ||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||
Banking service revenue | $ | 9,923 |
| $ | 10,330 |
| -3.9% |
| $ | 31,007 |
| $ | 30,662 |
| 1.1% | $ | 10,797 |
| $ | 9,923 |
| 8.8% |
| $ | 32,404 |
| $ | 31,007 |
| 4.5% |
Wealth management revenue |
| 6,016 |
| 6,526 |
| -7.8% |
| 18,747 |
| 19,719 |
| -4.9% |
| 6,407 |
| 6,016 |
| 6.5% |
|
| 18,688 |
| 18,747 |
| -0.3% | |||||
Mortgage banking activities |
| 1,274 |
|
| 1,421 |
| -10.3% |
|
| 2,820 |
|
| 3,300 |
| -14.5% |
| 1,242 |
|
| 1,274 |
| -2.5% |
| 3,987 |
|
| 2,820 |
| 41.4% | |
Total banking and financial service revenue |
| 17,213 |
|
| 18,277 |
| -5.8% |
|
| 52,574 |
|
| 53,681 |
| -2.1% |
| 18,446 |
|
| 17,213 |
| 7.2% |
| 55,079 |
|
| 52,574 |
| 4.8% | |
FDIC shared-loss benefit (expense), net |
| - |
|
| (3,296) |
| 100.0% |
|
| 1,403 |
|
| (10,745) |
| 113.1% | |||||||||||||||
Net gain (loss) on: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
FDIC shared-loss benefit |
| - |
|
| - |
| 0.0% |
| - |
|
| 1,403 |
| -100.0% | ||||||||||||||||
Net gain on: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Sale of securities available for sale |
| 4 |
| - |
| 100.0% |
| 6,896 |
| 12,207 |
| -43.5% |
| - |
| 4 |
| -100.0% |
| - |
| 6,896 |
| -100.0% | ||||||
Derivatives |
| - |
| 17 |
| -100.0% |
| 103 |
| 4 |
| 2475.0% |
| - |
| - |
| 0.0% |
| - |
| 103 |
| -100.0% | ||||||
Early extinguishment of debt |
| - |
| - |
| 0.0% |
| (80) |
| (12,000) |
| 99.3% |
| - |
| - |
| 0.0% |
| - |
| (80) |
| 100.0% | ||||||
Other non-interest income |
| 695 |
|
| 5,217 |
| -86.7% |
|
| 976 |
|
| 5,721 |
| -82.9% |
| 174 |
|
| 695 |
| -75.0% |
| 758 |
|
| 976 |
| -22.3% | |
|
| 699 |
|
| 1,938 |
| -63.9% |
|
| 9,298 |
|
| (4,813) |
| 293.2% |
| 174 |
|
| 699 |
| -75.1% |
|
| 758 |
|
| 9,298 |
| -91.8% |
Total non-interest income, net | $ | 17,912 |
| $ | 20,215 |
| -11.4% |
| $ | 61,872 |
| $ | 48,868 |
| 26.6% | $ | 18,620 |
| $ | 17,912 |
| 4.0% |
| $ | 55,837 |
| $ | 61,872 |
| -9.8% |
Non-Interest Income
Non-interest income is affected by the levelamount of the trust department assets under management, transactions generated by clients’ financial assets serviced by the securities broker-dealer and insurance agency subsidiaries, the level of mortgage banking activities, and the fees generated from loans and deposit accounts.accounts, and gains on sales of assets.
Comparison of quarters ended September 30, 20172018 and 20162017
Oriental recorded non-interest income, net, in the amount of $17.9$18.6 million, compared to $20.2$17.9 million, an increase of 4.0%, or $708 thousand. The increase in non-interest income was mainly due to:
·An increase of $874 thousand in banking service revenue, mainly from higher electronic banking fees of $1.3 million related to transaction volume, partially offset by a decrease of $436 thousand in commercial loan prepayment fees.
Comparison of nine-month periods ended September 30, 2018 and 2017
Oriental recorded non-interest income, net, in the amount of $55.8 million, compared to $61.9 million, a decrease of 11.4%9.8%, or $2.3$6.0 million. The decrease in non-interest income was mainly due to:
· A decreaseThe sale of $166.0 million in banking service and financial service revenue of 5.8% to $17.2 million from $18.3 million. Oriental had lower banking, mortgage banking and wealth management activity levels in September, because of the hurricanes Irma and María; and
·A decrease in other non-interest income of $4.5 million reflects the receipt of $5.0 millionmortgage-backed securities during the quarter ended September 30, 2016 from a loss in 2009 related to a private label collateralized mortgage obligation, partially offset by $571 thousand received as final settlement during the quarter ended September 30, 2017.
106
The decrease in non-interest income was partially offset by the elimination of the FDIC shared-loss expense as Oriental entered into an agreement with the FDIC to terminate the shared-loss agreements covering certain assets during the firstsecond quarter of 2017. During the third quarter2017, which generated a gain of 2016, Oriental recorded expenses of $3.3 million related to such agreement.
$6.9 million; and
Comparison of nine-month periods ended September 30, 2017 and 2016
Oriental recorded non-interest income, net, in the amount of $61.9 million, compared to $48.9 million, an increase of 26.6%, or $13.0 million. The increase in non-interest income was mainly due to:
· The termination of the FDIC shared-loss agreement during the first quarter of 2017 resulting in the recognition of a $1.4 million gain during such period, compared to $10.7gain.
The decrease was partially offset by:
·An increase of $1.4 million expensesbanking service revenue, mainly from higher electronic banking fees of $1.7 million related to the aforementioned agreement in the year ago period; andtransaction volume.
· The saleAn increase of $166.0 million of its mortgage-backed securities, generating a gain of $6.9 million. As a result of this sale, Oriental unwound $100 million of repurchase agreements at a cost of $80 thousand, included as a loss on early extinguishment of debt in the consolidated statements of operations. The transaction resulted in a net benefit of $6.8 million. In the same period in 2016, Oriental sold $277.2$1.2 million in mortgage-backed securities and $11.1mortgage banking activities which included $1.1 million in Puerto Rico government bonds, resulting in a gain of $12.2 million. This transaction resulted in the repayment before maturity of $268.0 million of a repurchase agreement at a cost of $12.0 million, included as a loss on the early extinguishment of debt in the consolidated statements of operations. The transaction resulted in a net benefit of $207 thousand.
Increase in non-interestother income was partially offset by a decrease in other non-interest incomefrom servicing assets due to higher book balances of mortgage loans, mainly attributed to the aforementioned hurricane-related moratorium.$5.0 million recognized in 2016 from a recovery of a previous loss related to a private label collateralized mortgage obligation.
10799
TABLE 3 - NON-INTEREST EXPENSES SUMMARY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||||||||||||
| 2017 |
| 2016 |
| Variance % |
| 2017 |
| 2016 |
| Variance % | 2018 |
| 2017 |
| Variance % |
| 2018 |
| 2017 |
| Variance % | ||||||||
| (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||||||||
Compensation and employee benefits | $ | 19,882 |
| $ | 19,168 |
| 3.7% |
| $ | 59,546 |
| $ | 57,864 |
| 2.9% | $ | 18,495 |
| $ | 19,882 |
| -7.0% |
| $ | 57,202 |
| $ | 59,546 |
| -3.9% |
Professional and service fees |
| 3,113 |
| 2,889 |
| 7.8% |
|
| 9,575 |
| 8,685 |
| 10.2% |
| 3,077 |
| 3,113 |
| -1.2% |
|
| 8,917 |
| 9,575 |
| -6.9% | ||||
Occupancy and equipment |
| 8,276 |
| 7,353 |
| 12.6% |
|
| 24,012 |
| 22,995 |
| 4.4% |
| 8,388 |
| 8,276 |
| 1.4% |
|
| 25,322 |
| 24,012 |
| 5.5% | ||||
Insurance |
| 1,052 |
| 1,242 |
| -15.3% |
|
| 3,834 |
| 7,547 |
| -49.2% |
| 1,620 |
| 1,052 |
| 54.0% |
|
| 4,580 |
| 3,834 |
| 19.5% | ||||
Electronic banking charges |
| 5,021 |
| 5,077 |
| -1.1% |
|
| 15,373 |
| 15,613 |
| -1.5% |
| 5,586 |
| 5,021 |
| 11.3% |
|
| 15,968 |
| 15,373 |
| 3.9% | ||||
Information technology expenses |
| 2,046 |
| 1,862 |
| 9.9% |
|
| 6,114 |
| 5,124 |
| 19.3% |
| 2,056 |
| 2,046 |
| 0.5% |
|
| 6,064 |
| 6,114 |
| -0.8% | ||||
Advertising, business promotion, and strategic initiatives |
| 1,405 |
| 1,347 |
| 4.3% |
|
| 4,205 |
| 4,133 |
| 1.7% |
| 1,329 |
| 1,405 |
| -5.4% |
|
| 3,700 |
| 4,205 |
| -12.0% | ||||
Loss on sale of foreclosed real estate and other repossessed assets |
| 1,395 |
| 2,970 |
| -53.0% |
|
| 4,508 |
| 9,063 |
| -50.3% |
| 1,210 |
| 1,395 |
| -13.3% |
|
| 2,828 |
| 4,508 |
| -37.3% | ||||
Loan servicing and clearing expenses |
| 1,134 |
| 2,844 |
| -60.1% |
|
| 3,592 |
| 6,940 |
| -48.2% |
| 1,251 |
| 1,134 |
| 10.3% |
|
| 3,639 |
| 3,592 |
| 1.3% | ||||
Taxes, other than payroll and income taxes |
| 2,243 |
| 2,385 |
| -6.0% |
|
| 7,007 |
| 7,386 |
| -5.1% |
| 2,175 |
| 2,243 |
| -3.0% |
|
| 6,820 |
| 7,007 |
| -2.7% | ||||
Communication |
| 855 |
| 748 |
| 14.3% |
|
| 2,682 |
| 2,434 |
| 10.2% |
| 927 |
| 855 |
| 8.4% |
|
| 2,627 |
| 2,682 |
| -2.1% | ||||
Printing, postage, stationery and supplies |
| 586 |
| 602 |
| -2.7% |
|
| 1,889 |
| 1,927 |
| -2.0% |
| 499 |
| 586 |
| -14.8% |
|
| 1,748 |
| 1,889 |
| -7.5% | ||||
Director and investor relations |
| 221 |
| 233 |
| -5.2% |
|
| 775 |
| 812 |
| -4.6% |
| 223 |
| 221 |
| 0.9% |
|
| 800 |
| 775 |
| 3.2% | ||||
Credit related expenses |
| 1,714 |
| 3,718 |
| -53.9% |
|
| 6,557 |
| 8,177 |
| -19.8% |
| 2,736 |
| 1,714 |
| 59.6% |
|
| 7,052 |
| 6,557 |
| 7.5% | ||||
Other operating expenses |
| 1,526 |
| 2,488 |
| -38.7% |
|
| 5,300 |
|
| 4,908 |
| 8.0% |
| 1,369 |
| 1,526 |
| -10.3% |
|
| 8,095 |
| 5,300 |
| 52.7% | |||
Total non-interest expenses | $ | 50,469 |
| $ | 54,926 |
| -8.1% |
| $ | 154,969 |
| $ | 163,608 |
| -5.3% | $ | 50,941 |
| $ | 50,469 |
| 0.9% |
| $ | 155,362 |
| $ | 154,969 |
| 0.3% |
Relevant ratios and data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Efficiency ratio |
| 51.66% |
|
| 57.69% |
|
|
|
| 54.71% |
|
| 58.66% |
|
|
| 50.58% |
|
| 51.66% |
|
|
|
| 53.77% |
|
| 54.71% |
|
|
Compensation and benefits to non-interest expense |
| 39.39% |
|
| 34.94% |
|
|
|
| 38.42% |
|
| 35.45% |
|
|
| 36.31% |
|
| 39.39% |
|
|
|
| 36.82% |
|
| 38.42% |
|
|
Compensation to average total assets owned (annualized) |
| 1.32% |
|
| 1.15% |
|
|
|
| 1.91% |
|
| 1.14% |
|
| |||||||||||||||
Compensation to average total assets owned |
| 1.11% |
|
| 1.32% |
|
|
|
| 1.72% |
|
| 1.91% |
|
| |||||||||||||||
Average number of employees |
| 1,464 |
|
| 1,435 |
|
|
|
| 1,464 |
|
| 1,451 |
|
|
| 1,365 |
|
| 1,464 |
|
|
|
| 1,365 |
|
| 1,464 |
|
|
Average compensation per employee | $ | 13.58 |
| $ | 13.40 |
|
|
| $ | 40.7 |
| $ | 40.0 |
|
| $ | 13.55 |
| $ | 13.58 |
|
|
| $ | 41.91 |
| $ | 40.67 |
|
|
Average loans per average employee | $ | 2,775 |
| $ | 3,065 |
|
|
| $ | 2,848 |
| $ | 3,061 |
|
| $ | 3,234 |
| $ | 2,775 |
|
|
| $ | 3,155 |
| $ | 2,848 |
|
|
108100
Non-Interest Expenses
Comparison of quarters ended September 30, 20172018 and 20162017
Non-interest expense was $50.5$50.9 million, representing a decreaseslight increase of 8.1%0.9% compared to $54.9$50.5 million.
The decreaseincrease in non-interest expenses was driven by:
· Lower creditHigher credit-related expenses of $1.0 million related to higher legal fees on foreclosed properties of $562 thousand and other real estate owned expenses by $2.0 million mainly from lower foreclosures when compared to the same quarter of 2016;$459 thousand;
· Lower loan servicing and clearingHigher insurance expenses by $1.7 million, mainly due to a reduction of $1.1 million in mortgage servicing expense from the migration to in-house servicing during 2016; and
·Lower losses on the sale of foreclosed real estate and other repossessed assets by $1.6 million due to lower write-downs on the valuation of mortgage properties, mainly in the acquired loan portfolios.
The decreases in the foregoing non-interest expenses were partially offset by:
·Higher occupancy and equipment expenses by $923$568 thousand primarily duerelated to an increase of the Company’s insurance premiums renewal in rent expenses driven by less rent income and to an increase in internet services;July 2018 as a consequence of hurricane Maria; and
· Higher electronic banking charges of $565 thousand due to an increase in transaction volume.
The increases in the foregoing non-interest expenses were offset by:
·Lower compensation and employee benefits by $714 thousand,$1.4 million, mainly due to an increasea decrease in the average number of employees.
The efficiency ratio improved from 51.66% to 51.66% from 57.69%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, FDIC shared-loss benefit/expense,benefit, losses on the early extinguishment of debt, other gains and losses, and other income that may be considered volatile in nature. Management believes that the exclusion of those items permits consistent comparability. Amounts presented as part of non-interest income that are excluded from efficiency ratio computation for the quarters ended September 30, 2018 and 2017 amounted to $174 thousand and $699 thousand, 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 its banking operations. Estimated losses at December 31, 2017 amounted to $6.6 million. No additional losses have been incurred at September 30, 2018.
Oriental maintains insurance for casualty losses as well as for disaster response costs and certain revenue lost through business interruption. Management believes that recovery of $2.2 million incurred costs as of December 31, 2017 is probable. Oriental received a $1.0 million partial payment from the insurance company in December 2017 and 2016 amounted to $699 thousand incomea $0.7 million payment during the nine-month period ended September 30, 2018. Accordingly, a receivable of $0.5 million and a $1.9$1.2 million loss, respectively.was included in other assets at September 30, 2018 and December 31, 2017, respectively, for the expected recovery.
Comparison of nine-month periods ended September 30, 20172018 and 20162017
Non-interest expense was $155.4 million, representing a slight increase of 0.3% compared to $155.0 million.
The increase in non-interest expenses for the nine-month period ended September 30, 2017 was $155.0 million, representing a decrease of 5.3% compared to $163.6 million.
The decrease in non-interest expenses2018 was driven by:
· Lower losses on sale of foreclosed real estateHigher other operating expenses by $2.8 million, mainly attributed to an increase in claims and settlements accruals and other repossessedlosses, and to minor repairs to physical assets by $4.6 million duerelated to lower write-downs on valuationsthe impact of mortgage properties;hurricanes.
·Lower insurance expense by $3.7 million as a result of a change in the calculation method of the FDIC Savings Association Insurance Fund (SAIF) insurance. The change was effective beginning with the June 30, 2016 invoice, which was received during the third quarter of 2016; and
·Lower loan servicing and clearing expenses by $3.3 million mainly due to a reduction in mortgage servicing expense from the migration to in-house servicing during 2016.
As in the quarterly variances, the decreases in the foregoing non-interest expenses were partially offset by increases in occupancy and equipment expenses, mainly in rent expense, and inby:
·Lower compensation and employee benefits by $2.3 million, mainly due to a decrease in the average number of $1.0 million and $1.7 million, respectively.employees.
109101
The efficiency ratio wasimproved from 54.71% compared to 58.66%53.77% for the same period in 2016.2017. Amounts presented as part of non-interest income that are excluded from the efficiency ratio computation for the nine-month periodperiods ended September 30, 2018 and 2017 amounted to income of$758 thousand and $9.3 million, compared to a loss of $4.8 million for the nine-month period ended September 30, 2016.respectively.
Provision for Loan and Lease Losses
Comparison of quarters ended September 201730, 2018 and 20162017
Provision for loan and lease losses increased 87.7%, or $20.6 million, to $44.0 million. Based on an analysis of the credit quality and the composition of Oriental’s loan portfolio, management determined that the provision for the quarter was adequate to maintain the allowance for loan and lease losses at an appropriate level to provide for probable losses based upon an evaluation of known and inherent risks.
DuringProvision for loan and lease losses decreased 66.8%, or $29.4 million, to $14.6 million. Such decrease is directly related to the third quarter of$27 million provisioned in September 2017 Oriental was impacted by($16.8 million corresponding to originated loan portfolio and $10.2 corresponding to acquired portfolio), due to the assessment made related to the hurricanes Irma and Maria which struck the island onIsland in September 7, 2017 and September 20, 2017, respectively. Based on our assessment of the facts related to these hurricanes, we have increased our2017. In addition, provision for loan losses $27.0 million. The provision corresponding to our originated loan portfolio was $16.8 million, $3.8 million in mortgage loans, $7.6 million in commercial loans, $0.8 million in consumer loans, and $4.6 million in auto loans. The provision corresponding to our acquired loan portfolio decreased $3.0 million, mainly from lower portfolio balances due to repayments and maturities.
Comparison of nine-month periods ended September 30, 2018 and 2017
Provision for loan and lease losses decreased 49.2%, or $43.4 million, to $44.8 million. The decrease in the provision was $10.2 million, $2.7mostly due to:
·Hurricanes provision of $27 million in mortgage loans, $7.0the third quarter of 2017 and $5.4 million in commercial loans, $0.1the fourth quarter of 2017;
·A $4.3 million provision in consumer loans,the second quarter of 2017 to charge-off the loss on sale of a loan to a Puerto Rico government municipality and $0.4a $5.9 million provision to increase the general allowance on the remaining municipal loan portfolio; and
·Decrease in auto loans. acquired loan portfolio provision of $4.5 million, mainly from lower portfolio balances.
Such decreases were offset by a $3.7 million increase in the originated portfolio provision related to higher balances as compared to the same period in 2017.
Please refer to the "Allowance for Loan and Lease Losses" in the "Credit Risk Management" section of this MD&A for a more detailed analysis of the allowance for loan and lease losses.
Excluding the special provision made because of the hurricanes during the third quarter of 2017, the total provision decreased $6.4 million. The decrease in the provision was mostly due to:
·A decrease in the provision for acquired BBVAPR loan and lease losses of $5.4 million, mainly due to an additional provision recognized during the year ago quarter of $4.4 million for the Puerto Rico Housing Financing Authority loan; and
·A decrease in the provision for originated and other loan and lease losses of $1.8 million, mainly due to an additional provision recognized during the year ago quarter of $2.9 million for the classification to held for sale of the Puerto Rico Electric Power Authority (“PREPA”) line of credit, partially offset by the growth of originated loan portfolio.
Total net charge-offs on originated and other loans decreased 81.9%, or $53.5 million, as a result of the PREPA line of credit sold in the third quarter of 2016, in which a $56.2 million charge-off was recognized. The net charge-off rate decreased 673 basis points to 1.54%.
Comparison of nine-month periods ended September 30, 2017 and 2016
Provision for loan and lease losses increased 70.7% or $36.5 million, to $88.2 million. Excluding the special provision of $27.0 million because of the hurricanes during the third quarter of 2017, the total provision increased $9.5 million. The increase in the provision was mostly due to an increase in the provision for originated and other loan and lease losses by $13.0 million, mainly from the increase in the provision for commercial loans. Such provision includes $4.3 million recorded to charge-off the loss on sale of a municipal loan and another provision of $5.9 million recorded for the general allowance on the municipal loan portfolio during the second quarter of 2017.
The increase in provision was partially offset by a decrease in the provision for acquired BBVAPR loan and lease losses of $4.4 million mainly due to an additional provision recognized during the year ago period of $4.4 million for the Puerto Rico Housing Financing Authority loan.
110
Income Taxes
Comparison of quarters ended September 30, 20172018 and 20162017
Income tax expense was $560 thousand,$12.3 million, compared to $3.6 million,$560 thousand, reflecting the effective income tax rate of 29.77%33.7% and the net income before income taxes of $3.9$35.4 million for the third quarter of 2017.2018.
Comparison of nine-month periods ended September 30, 20172018 and 20162017
Income tax expense was $13.8$29.9 million, compared to $15.1$13.8 million, for the same period in 2016. Income tax expense reflectsreflecting the effective income tax rate of 29.77%33.7% and the net income before income taxes of $49.3$89.5 million for the nine-month period ended September 30, 2017.2018.
102
Business Segments
Oriental segregates its businesses into the following major reportable segments: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as Oriental’s organization, nature of its products, distribution channels and economic characteristics of the productsits services were also considered in the determination of the reportable segments. Oriental measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. Oriental’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others. Following are the results of operations and the selected financial information by operating segment for the quarters and nine-month periods ended September 30, 20172018 and 2016.2017.
111103
| Quarter Ended September 30, 2017 | Quarter Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated |
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 82,162 |
| $ | 13 |
| $ | 8,180 |
| $ | 90,355 |
| $ | - |
| $ | 90,355 | $ | 83,664 |
| $ | 9 |
| $ | 10,464 |
| $ | 94,137 |
| $ | - |
| $ | 94,137 |
Interest expense |
| (6,342) |
|
| - |
|
| (3,535) |
|
| (9,877) |
|
| - |
|
| (9,877) |
| (7,701) |
|
| - |
|
| (4,159) |
|
| (11,860) |
|
| - |
|
| (11,860) |
Net interest income |
| 75,820 |
|
| 13 |
|
| 4,645 |
|
| 80,478 |
|
| - |
|
| 80,478 |
| 75,963 |
|
| 9 |
|
| 6,305 |
|
| 82,277 |
|
| - |
|
| 82,277 |
Provision for loan and lease losses |
| (44,042) |
| - |
| - |
| (44,042) |
| - |
| (44,042) |
| (14,478) |
| - |
| (123) |
| (14,601) |
| - |
| (14,601) | ||||||||||
Non-interest income |
| 10,384 |
| 6,695 |
| 833 |
| 17,912 |
| - |
| 17,912 |
| 12,157 |
| 6,463 |
| - |
| 18,620 |
| - |
| 18,620 | ||||||||||
Non-interest expenses |
| (43,819) |
| (5,048) |
| (1,602) |
| (50,469) |
| - |
| (50,469) |
| (46,049) |
| (3,720) |
| (1,172) |
| (50,941) |
| - |
| (50,941) | ||||||||||
Intersegment revenue |
| 431 |
| - |
| - |
| 431 |
| (431) |
| - |
| 616 |
| - |
| - |
| 616 |
| (616) |
| - | ||||||||||
Intersegment expenses |
| - |
|
| (324) |
|
| (107) |
|
| (431) |
|
| 431 |
|
| - |
| - |
|
| (273) |
|
| (343) |
|
| (616) |
|
| 616 |
|
| - |
Income before income taxes | $ | (1,226) |
| $ | 1,336 |
| $ | 3,769 |
| $ | 3,879 |
| $ | - |
| $ | 3,879 | $ | 28,209 |
| $ | 2,479 |
| $ | 4,667 |
| $ | 35,355 |
| $ | - |
| $ | 35,355 |
Income tax expenses (benefit) |
| (475) |
|
| 521 |
|
| 514 |
|
| 560 |
|
| - |
|
| 560 | |||||||||||||||||
Net (loss) income | $ | (751) |
| $ | 815 |
| $ | 3,255 |
| $ | 3,319 |
| $ | - |
| $ | 3,319 | |||||||||||||||||
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 | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 | $ | 6,156,500 |
| $ | 25,243 |
| $ | 1,459,682 |
| $ | 7,641,425 |
| $ | (984,751) |
| $ | 6,656,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Quarter Ended September 30, 2016 | Quarter Ended September 30, 2017 | ||||||||||||||||||||||||||||||||
|
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated |
|
| Wealth |
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 82,564 |
| $ | 15 |
| $ | 8,005 |
| $ | 90,584 |
| $ | - |
| $ | 90,584 | $ | 82,162 |
| $ | 13 |
| $ | 8,180 |
| $ | 90,355 |
| $ | - |
| $ | 90,355 |
Interest expense |
| (6,733) |
|
| - |
|
| (6,924) |
|
| (13,657) |
|
| - |
|
| (13,657) |
| (6,342) |
|
| - |
|
| (3,535) |
|
| (9,877) |
|
| - |
|
| (9,877) |
Net interest income |
| 75,831 |
|
| 15 |
|
| 1,081 |
|
| 76,927 |
|
| - |
|
| 76,927 |
| 75,820 |
|
| 13 |
|
| 4,645 |
|
| 80,478 |
|
| - |
|
| 80,478 |
Provision for loan and lease losses |
| (23,469) |
| - |
| - |
| (23,469) |
| - |
| (23,469) |
| (44,042) |
| - |
| - |
| (44,042) |
| - |
| (44,042) | ||||||||||
Non-interest income |
| 8,918 |
| 6,379 |
| 4,918 |
| 20,215 |
| - |
| 20,215 |
| 10,384 |
| 6,695 |
| 833 |
| 17,912 |
| - |
| 17,912 | ||||||||||
Non-interest expenses |
| (50,095) |
| (3,757) |
| (1,074) |
| (54,926) |
| - |
| (54,926) |
| (43,819) |
| (5,048) |
| (1,602) |
| (50,469) |
| - |
| (50,469) | ||||||||||
Intersegment revenue |
| 375 |
| - |
| 86 |
| 461 |
| (461) |
| - |
| 431 |
| - |
| - |
| 431 |
| (431) |
| - | ||||||||||
Intersegment expenses |
| (86) |
|
| (272) |
|
| (103) |
|
| (461) |
|
| 461 |
|
| - |
| - |
|
| (324) |
|
| (107) |
|
| (431) |
|
| 431 |
|
| - |
Income before income taxes | $ | 11,474 |
| $ | 2,365 |
|
| 4,908 |
| $ | 18,747 |
| $ | - |
| $ | 18,747 | $ | (1,226) |
| $ | 1,336 |
|
| 3,769 |
| $ | 3,879 |
| $ | - |
| $ | 3,879 |
Income tax expenses (benefit) |
| 4,475 |
|
| 922 |
|
| (1,770) |
|
| 3,627 |
|
| - |
|
| 3,627 | |||||||||||||||||
Income tax expense (benefit) |
| (475) |
|
| 521 |
|
| 514 |
|
| 560 |
|
| - |
|
| 560 | |||||||||||||||||
Net income | $ | 6,999 |
| $ | 1,443 |
| $ | 6,678 |
| $ | 15,120 |
| $ | - |
| $ | 15,120 | $ | (751) |
| $ | 815 |
| $ | 3,255 |
| $ | 3,319 |
| $ | - |
| $ | 3,319 |
Total assets | $ | 5,715,958 |
| $ | 19,433 |
| $ | 1,801,752 |
| $ | 7,537,143 |
| $ | (945,029) |
| $ | 6,592,114 | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112104
| Nine-Month Period Ended September 30, 2017 | Nine-Month Period Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated |
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | ||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||
Interest income | $ | 236,754 |
| $ | 43 |
| $ | 25,676 |
| $ | 262,473 |
| $ | - |
| $ | 262,473 | $ | 236,171 |
| $ | 35 |
| $ | 29,107 |
| $ | 265,313 |
| $ | - |
| $ | 265,313 |
Interest expense |
| (19,976) |
|
| - |
|
| (11,838) |
|
| (31,814) |
|
| - |
|
| (31,814) |
| (21,123) |
|
| - |
|
| (10,331) |
|
| (31,454) |
|
| - |
|
| (31,454) |
Net interest income |
| 216,778 |
|
| 43 |
|
| 13,838 |
|
| 230,659 |
|
| - |
|
| 230,659 |
| 215,048 |
|
| 35 |
|
| 18,776 |
|
| 233,859 |
|
| - |
|
| 233,859 |
Provision for loan and lease losses |
| (88,210) |
| - |
| (22) |
| (88,232) |
| - |
| (88,232) |
| (44,677) |
| - |
| (131) |
| (44,808) |
| - |
| (44,808) | ||||||||||
Non-interest income |
| 35,387 |
| 18,952 |
| 7,533 |
| 61,872 |
| - |
| 61,872 |
| 36,590 |
| 19,219 |
| 28 |
| 55,837 |
| - |
| 55,837 | ||||||||||
Non-interest expenses |
| (137,275) |
| (13,368) |
| (4,326) |
| (154,969) |
| - |
| (154,969) |
| (140,239) |
| (12,288) |
| (2,835) |
| (155,362) |
| - |
| (155,362) | ||||||||||
Intersegment revenue |
| 1,243 |
| - |
| 140 |
| 1,383 |
| (1,383) |
| - |
| 1,519 |
| - |
| - |
| 1,519 |
| (1,519) |
| - | ||||||||||
Intersegment expenses |
| (140) |
|
| (889) |
|
| (354) |
|
| (1,383) |
|
| 1,383 |
|
| - |
| - |
|
| (660) |
|
| (859) |
|
| (1,519) |
|
| 1,519 |
|
| - |
Income before income taxes | $ | 27,783 |
| $ | 4,738 |
| $ | 16,809 |
| $ | 49,330 |
| $ | - |
| $ | 49,330 | $ | 68,241 |
| $ | 6,306 |
| $ | 14,979 |
| $ | 89,526 |
| $ | - |
| $ | 89,526 |
Income tax expense |
| 10,836 |
|
| 1,848 |
|
| 1,073 |
|
| 13,756 |
|
| - |
|
| 13,756 |
| 26,614 |
|
| 2,459 |
|
| 787 |
|
| 29,860 |
|
| - |
|
| 29,860 |
Net income | $ | 16,947 |
| $ | 2,890 |
| $ | 15,736 |
| $ | 35,574 |
| $ | - |
| $ | 35,574 | $ | 41,627 |
| $ | 3,847 |
| $ | 14,192 |
| $ | 59,666 |
| $ | - |
| $ | 59,666 |
Total assets | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 | $ | 6,156,500 |
| $ | 25,243 |
| $ | 1,459,682 |
| $ | 7,641,425 |
| $ | (984,751) |
| $ | 6,656,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine-Month Period Ended September 30, 2017 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | ||||||||
| Nine-Month Period Ended September 30, 2016 | Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | ||||||||||||||||||||||
|
|
|
| Wealth |
|
|
|
| Total Major |
|
|
|
| Consolidated | (In thousands) | |||||||||||||||||||
| Banking |
| Management |
| Treasury |
| Segments |
| Eliminations |
| Total | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||
Interest income | $ | 243,389 |
| $ | 49 |
| $ | 26,360 |
| $ | 269,798 |
| $ | - |
| $ | 269,798 | $ | 236,754 |
| $ | 43 |
| $ | 25,676 |
| $ | 262,473 |
| $ | - |
| $ | 262,473 |
Interest expense |
| (20,840) |
|
| - |
|
| (23,744) |
|
| (44,584) |
|
| - |
|
| (44,584) |
| (19,976) |
|
| - |
|
| (11,838) |
|
| (31,814) |
|
| - |
|
| (31,814) |
Net interest income |
| 222,549 |
|
| 49 |
|
| 2,616 |
|
| 225,214 |
|
| - |
|
| 225,214 |
| 216,778 |
|
| 43 |
|
| 13,838 |
|
| 230,659 |
|
| - |
|
| 230,659 |
Provision for loan and lease losses |
| (51,703) |
| - |
| - |
| (51,703) |
| - |
| (51,703) |
| (88,210) |
| - |
| (22) |
| (88,232) |
| - |
| (88,232) | ||||||||||
Non-interest income (loss) |
| 24,927 |
| 19,309 |
| 4,637 |
| 48,873 |
| - |
| 48,873 | ||||||||||||||||||||||
Non-interest income |
| 35,387 |
| 18,952 |
| 7,533 |
| 61,872 |
| - |
| 61,872 | ||||||||||||||||||||||
Non-interest expenses |
| (147,881) |
| (11,610) |
| (4,117) |
| (163,608) |
| - |
| (163,608) |
| (137,275) |
| (13,368) |
| (4,326) |
| (154,969) |
| - |
| (154,969) | ||||||||||
Intersegment revenue |
| 1,162 |
| - |
| 235 |
| 1,397 |
| (1,397) |
| - |
| 1,243 |
| - |
| 140 |
| 1,383 |
| (1,383) |
| - | ||||||||||
Intersegment expenses |
| (235) |
|
| (849) |
|
| (313) |
|
| (1,397) |
|
| 1,397 |
|
| - |
| (140) |
|
| (889) |
|
| (354) |
|
| (1,383) |
|
| 1,383 |
|
| - |
Income before income taxes | $ | 48,819 |
| $ | 6,899 |
| $ | 3,058 |
| $ | 58,776 |
| $ | - |
| $ | 58,776 | $ | 27,783 |
| $ | 4,738 |
| $ | 16,809 |
| $ | 49,330 |
| $ | - |
| $ | 49,330 |
Income tax expense |
| 19,039 |
|
| 2,691 |
|
| (6,584) |
|
| 15,146 |
|
| - |
|
| 15,146 |
| 10,836 |
|
| 1,848 |
|
| 1,073 |
|
| 13,757 |
|
| - |
|
| 13,757 |
Net income | $ | 29,780 |
| $ | 4,208 |
| $ | 9,642 |
| $ | 43,630 |
| $ | - |
| $ | 43,630 | $ | 16,947 |
| $ | 2,890 |
| $ | 15,736 |
| $ | 35,573 |
| $ | - |
| $ | 35,573 |
Total assets | $ | 5,715,957 |
| $ | 19,433 |
| $ | 1,801,752 |
| $ | 7,537,142 |
| $ | (945,029) |
| $ | 6,592,113 | $ | 5,605,922 |
| $ | 23,148 |
| $ | 1,620,919 |
| $ | 7,249,989 |
| $ | (961,772) |
| $ | 6,288,217 |
113105
Comparison of quarters ended September 30, 20172018 and 20162017
Banking
Oriental's banking segment net income decreased $7.8before taxes increased $29.4 million from a loss of $1.2 million to a net loss of $751 thousand, reflecting:
·An increase in$28.2 million, reflecting that the provision for loan and lease losses of $20.6decreased 66.8%, or $29.4 million, mainlyto $14.6 million. Such decrease is directly related to the $27 million provisioned in September 2017 ($16.8 million corresponding to originated loan portfolio and $10.2 corresponding to acquired portfolio), due to the $27.0 million special provision ($19.0 million, net of tax)assessment made related to the hurricanes Irma and Maria which struck the Island in the third quarter of 2017;
·A decrease in non-interest expenses of $6.3 million mainly as a result of lower credit related expenses by $2.0September 2017. In addition, provision for acquired loan portfolio decreased $3.0 million, mainly from lower foreclosures, lower loan servicing and clearing expenses by $1.7 million, mainlyportfolio balances due to a reduction of $1.1 million in mortgage servicing expense from the migration to in-house servicing during 2016,repayments and lower losses on sale of foreclosed real estate and other repossessed assets by $1.6 million due to lower write-downs on valuation of mortgage properties, mainly in the acquired loan portfolios; andmaturities.
·An increase in non-interest income of $1.5 million to $10.4 million, mainly because of the elimination of FDIC shared-loss expense during the first quarter of 2017.
Wealth Management
Wealth management segment revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, decreasedincreased $1.1 million to $628$2.5 million thousand from a net income of $1.4 million in the same quarter of 2016 due to lower activity levelsexpenses by $1.3 million, mainly in September 2017 related to hurricanes Irmacompensation and Maria.employee benefits.
Treasury
Treasury segment net income before taxes, which consists of Oriental's asset/liability management activities, such as purchase and sale of investment securities, interest rate risk management, derivatives, and borrowings, decreasedincreased from $3.8 million to $3.3$4.7 million, comparedreflecting less interest income from investments by $2.3 million, mainly due to $6.7increase in interest rates of $2.0 million reflecting:and in volume by $273 thousand.
·Lower non-interest income by $4.1 million reflects the receipt of $5.0 million during the quarter ended September 30, 2016 from a loss in 2009 related to a private label collateralized mortgage obligation, partially offset by $571 thousand received as final settlement during the quarter ended September 30, 2017;
·A decrease in lower interest expenses from securities sold under agreements to repurchase of $3.0 million from the repayment at maturity of (i) a $232.0 million repurchase agreement at 4.78% in March 2017 and (ii) a $160.4 million short-term repurchase agreements which were not renewed during the third quarter of 2017; and
·Higher non-interest expenses by $528 thousand from $1.1 million to $1.6 million, mainly from general operating expenses.
Comparison of nine-month periods ended September 30, 20172018 and 20162017
Banking
Oriental's banking segment net income decreased $12.8before taxes increased $40.5 million to $29.8 million, reflecting:
·A decrease in net interest income by $5.8$68.2 million, mainly from the acquired BBVAPR and Eurobank loan portfolios as such loans continue to be repaid.reflecting a
·The special decrease in provision for loan and lease losses of $27.049.2%, or $43.4 million, ($19.0to $44.8 million, netmainly from hurricanes provision of tax) placed$27 million and $5.4 million in the third and fourth quarters of 2017, respectively. In addition, during the period related to hurricanes Irma and Maria;
·An increase in the regular provision for originated and other loan and lease lossessecond quarter of $13.0 million, which includes2017, Oriental recognized a $4.3 million recordedprovision to charge-off the loss on sale of a municipal loan to a Puerto Rico government municipality and another provision ofa $5.9 million recorded forprovision to increase the
114
general allowance on the remaining municipal loan portfolioportfolio.
Wealth Management
Wealth management revenue, which consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities, increased $1.6 million to $6.3 million, mainly from lower expenses of $1.1 million, mainly in compensation and employee benefits.
Treasury
Treasury segment net income before taxes decreased $1.8 million from $16.8 million to $15.0 million, reflecting:
·The sale of $166.0 million in mortgage-backed securities during the second quarter of 2017, which generated a gain of $6.9 million.
Such decrease was partially offset by:
·Higher interest income from investment of $3.1 million, reflecting an increase in interest rates of $4.5 million, partially offset by a decrease in the provision for acquired BBVAPR loanvolume of $1.4 million; and lease losses of $4.4 million, mainly due to an additional provision recognized during the year ago period of $4.4 million for the Puerto Rico Housing Financing Authority loan;
·Higher non-interest income by $10.5 million, reflecting the termination of the FDIC shared-loss agreement in the first quarter of 2017.
· Lower interest expenses by $10.6 million due to lower losses on the sale of foreclosed real estaterepurchase agreements and other repossessed assets by $4.6 million due to lower write-downs on valuationsborrowings of mortgage properties, lower insurance expense by $3.7$1.3 million as a result of a change in the calculation method of the FDIC Savings Association Insurance Fund (SAIF) insurance, and lower loan servicing and clearing expenses by $3.3 million mainly due to a reduction in mortgage servicing expense from the migration to in-house servicing during 2016.
Wealth Management
Wealth management segment revenue decreased $1.3 million to $2.9 million, mainly from changes in volume and market rates and lower activity levels in September 2017 related to hurricanes Irma and Maria.
Treasury
Treasury segment income before taxes increased to $16.8 million, compared to $3.1 million, reflecting lower interest expenses by $11.9 million related to:
·The partial unwinding of a $268.0 million repurchase agreement at 4.78% in February 2016 and the repayment at maturity of the remaining $232.0 million balance in March 2017;
·The decrease in other borrowings balances that resulted from the repayment at maturity of $227.0 million of short term FHLB advances during the second quarter of 2016; and
·The repayment at maturity of $72.9 million in short-termhigh cost repurchase agreements which were not renewed during the third quarter of 2017.and FHLB advances.
115106
ANALYSIS OF FINANCIAL CONDITION
Assets Owned
At September 30, 2017,2018, Oriental’s total assets amounted to $6.288$6.657 billion representing a decreasean increase of 3.3%7.6% when compared to $6.502$6.189 billion at December 31, 2016.2017. This reductionincrease is mainly dueattributable to a decreasean increase in the investment portfolioloans and investments portfolios of $204.6$296.7 million and a decrease in the loan portfolio of $183.1$140.1 million, partially offset byrespectively, and an increase in cash and due from bankscash equivalents of $209.4$58.5 million.
Oriental's investment portfolio decreased 15.0% from $1.363 billion at December 31, 2016 to $1.158 billion at September 30, 2017, mainly attributed to the sale of $166.0 million mortgage-backed securities available-for-sale during the second quarter of 2017, and to paydowns in the investment securities held-to-maturity portfolio of $65.9 million.
Oriental’s loan portfolio is comprised of residential mortgage loans, commercial loans collateralized by mortgages on real estate, located in Puerto Rico, other commercial and industrial loans, consumer loans, and auto loans. At September 30, 2017,2018, Oriental’s loan portfolio decreased 4.4%increased 7.3%. OurLoan production during the nine-month period ended September 30, 2018, reached $1.088 billion compared to $664.1 million in the year ago period, a 65.0% increase. The non-acquired loan portfolio is transitioning as originated loans growincreased $432.7 million from December 31, 2017 to $3.638 billion at a slower pace than acquired loans decrease, due to repayments and maturities. TheSeptember 30, 2018. From December 31, 2017, the BBVAPR acquired loan portfolio decreased $162.6$122.5 million from December 31, 2016 to $845.3 million. The$703.5 million and the Eurobank acquired loan portfolio decreased $34.5$8.6 million from December 31, 2016 to $100.1$90.7 million at September 30, 2017.2018.
Oriental's investment portfolio increased 12.0% to $1.306 billion at September 30, 2018, mainly attributed to the purchase of $271.4 million mortgage-backed securities available-for-sale and retained securitized GNMA pools totaling $58.7 million, partially offset by paydowns in the investment available-for-sale portfolio of $86.6 million and in the investment securities held-to-maturity portfolio of $58.5 million during the nine-month period ended September 30, 2018.
Cash and duecash equivalents increased 12.1% to $543.8 million, mainly attributed to an increase in deposits.
Accrued interest receivable resulting from banks increased 41.2% to $717.2 million, due to increased depositsOriental’s loan payment moratoriums after hurricanes Irma and lower transaction outflows toward the endMaria have decreased from December 31, 2017, as such moratoriums have expired. Some of these accrued interest is payable upon maturity of the quarter from commercial customers.loan.
Financial Assets Managed
Oriental’s financial assets include those managed by Oriental’s trust division, retirement plan administration subsidiary, and assets gathered by its broker-dealer and insurance subsidiaries. Oriental’s trust division offers various types of individual retirement accounts ("IRA"s)IRAs") and manages 401(k) and Keogh retirement plans and custodian and corporate trust accounts, while the retirement plan administration subsidiary, OPC, manages private retirement plans. At September 30, 2017,2018, total assets managed by Oriental’s trust division and OPC amounted to $2.957$2.973 billion, compared to $2.850$3.040 billion at December 31, 2016.2017. Oriental Financial Services offers a wide array of investment alternatives to its client base, such as tax-advantaged fixed income securities, mutual funds, stocks, bonds and money management wrap-fee programs. At September 30, 2017,2018, total assets gathered by Oriental Financial Services and Oriental Insurance from its customer investment accounts amounted to $2.272$2.312 billion, compared to $2.351$2.250 billion at December 31, 2016.2017. Changes in trust and broker-dealer related assets primarily reflect changes in portfolio balances and differences in market values.
116
Goodwill
Goodwill recorded in connection with the BBVAPR Acquisition and the FDIC-assisted Eurobank acquisition is not amortized to expense but is tested at least annually for impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, Oriental determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired. Oriental completes its annual goodwill impairment test as of October 31 of each year. Oriental tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill.
107
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.
Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount may include macroeconomic conditions (such as a further deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, or similar events. Oriental’s loan portfolio, which is the largest component of its interest-earning assets, is concentrated in Puerto Rico and is directly affected by adverse local economic and fiscal conditions. Such conditions have generally affected the market demand for non-conforming loans secured by assets in Puerto Rico and, therefore, affect the valuation of Oriental’s assets.
As of September 30, 2017,2018, Oriental had $86.1 million of goodwill allocated as follows: $84.1 million to the Banking unit and $2.0 million to the Wealth Management unit. During the last quarter of 2016,2017, based on its annual goodwill impairment test, Oriental determined that the Banking unit failed step one of the two-step impairment test and that the Wealth Management unit passed such step. As a result of step one;one, the Banking unit’s adjusted net book value exceeded its fair value by approximately $145.0$236.4 million, or 15%26%. Accordingly, Oriental proceeded to perform step two of the analysis. Based on the results of step two, Oriental determined that the carrying value of the goodwill allocated to the Banking unit was not impaired as of the valuation date. During the nine-month period ended September 30, 2017,2018, Oriental performed an assessment of events or circumstances that could trigger reductions in the book value of the goodwill. Based on this assessment, no events were identified that triggered changes in the book value of goodwill at September 30, 2017.2018.
117108
FDIC Indemnification Asset
On February 6, 2017, the Bank and the FDIC agreed to terminate the single family and commercial shared-loss agreements related to the FDIC assisted acquisition of Eurobank on April 30, 2010. As part of the loss share termination transaction, the Bank made a payment of $10.1 million to the FDIC and recorded a net benefit of $1.4 million. Such termination payment took into account the anticipated reimbursements over the life of the shared-loss agreements and the true-up payment liability of the Bank anticipated at the end of the ten-year term of the single family shared-loss agreement. All rights and obligations of the parties under the shared-loss agreements terminated as of the closing date of the agreement.
109
TABLE 4 - ASSETS SUMMARY AND COMPOSITION |
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| September 30 |
| December 31, |
| Variance | September 30 |
| December 31 |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||
FNMA and FHLMC certificates | $ | 875,760 |
| $ | 1,025,370 |
| -14.6% | $ | 1,014,997 |
| $ | 887,779 |
| 14.3% |
Obligations of US government-sponsored agencies |
| 3,092 |
| 3,884 |
| -20.4% |
| 2,395 |
| 2,879 |
| -16.8% | ||
US Treasury securities |
| 10,218 |
| 49,054 |
| -79.2% |
| 10,460 |
| 10,163 |
| 2.9% | ||
CMOs issued by US government-sponsored agencies |
| 85,873 |
| 101,831 |
| -15.7% |
| 66,766 |
| 80,071 |
| -16.6% | ||
GNMA certificates |
| 164,767 |
| 165,235 |
| -0.3% |
| 197,454 |
| 167,338 |
| 18.0% | ||
Puerto Rico government and public instrumentalities |
| 2,206 |
| 4,073 |
| -45.8% |
| - |
| 2,093 |
| -100.0% | ||
FHLB stock |
| 14,016 |
| 10,793 |
| 29.9% |
| 12,461 |
| 13,995 |
| -11.0% | ||
Other debt securities |
| 1,685 |
| 1,921 |
| -12.3% |
| 1,159 |
| 1,538 |
| -24.6% | ||
Other investments |
| 287 |
|
| 350 |
| -18.0% |
| 408 |
|
| 194 |
| 110.3% |
Total investments |
| 1,157,904 |
|
| 1,362,511 |
| -15.0% |
| 1,306,100 |
|
| 1,166,050 |
| 12.0% |
Loans |
| 3,964,572 |
|
| 4,147,692 |
| -4.4% |
| 4,352,980 |
|
| 4,056,329 |
| 7.3% |
Total investments and loans |
| 5,122,476 |
|
| 5,510,203 |
| -7.0% |
| 5,659,080 |
|
| 5,222,379 |
| 8.4% |
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks (including restricted cash) |
| 717,226 |
| 507,863 |
| 41.2% |
| 540,975 |
| 481,212 |
| 12.4% | ||
Money market investments |
| 6,530 |
| 5,606 |
| 16.5% |
| 5,805 |
| 7,021 |
| -17.3% | ||
FDIC indemnification asset |
| - |
| 14,411 |
| -100.0% | ||||||||
Foreclosed real estate |
| 47,275 |
| 47,520 |
| -0.5% |
| 37,868 |
| 44,174 |
| -14.3% | ||
Accrued interest receivable |
| 22,736 |
| 20,227 |
| 12.4% |
| 33,452 |
| 49,969 |
| -33.1% | ||
Deferred tax asset, net |
| 126,041 |
| 124,200 |
| 1.5% |
| 122,934 |
| 127,421 |
| -3.5% | ||
Premises and equipment, net |
| 67,994 |
| 70,407 |
| -3.4% |
| 67,762 |
| 67,860 |
| -0.1% | ||
Servicing assets |
| 9,818 |
| 9,858 |
| -0.4% |
| 10,866 |
| 9,821 |
| 10.6% | ||
Derivative assets |
| 809 |
| 1,330 |
| -39.2% |
| 1,265 |
| 771 |
| 64.1% | ||
Goodwill |
| 86,069 |
| 86,069 |
| 0.0% |
| 86,069 |
| 86,069 |
| 0.0% | ||
Other assets and customers' liability on acceptances |
| 81,243 |
|
| 104,130 |
| -22.0% |
| 90,598 |
|
| 92,356 |
| -1.9% |
Total other assets |
| 1,165,741 |
|
| 991,621 |
| 17.6% |
| 997,594 |
|
| 966,674 |
| 3.2% |
Total assets | $ | 6,288,217 |
| $ | 6,501,824 |
| -3.3% | $ | 6,656,674 |
| $ | 6,189,053 |
| 7.6% |
Investment portfolio composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FNMA and FHLMC certificates |
| 75.6% |
| 75.2% |
|
|
| 77.7% |
| 76.1% |
|
| ||
Obligations of US government-sponsored agencies |
| 0.3% |
| 0.3% |
|
|
| 0.2% |
| 0.2% |
|
| ||
US Treasury securities |
| 0.9% |
| 3.6% |
|
|
| 0.8% |
| 0.9% |
|
| ||
CMOs issued by US government-sponsored agencies |
| 7.4% |
| 7.5% |
|
|
| 5.1% |
| 6.9% |
|
| ||
GNMA certificates |
| 14.2% |
| 12.1% |
|
|
| 15.1% |
| 14.4% |
|
| ||
Puerto Rico government and public instrumentalities |
| 0.2% |
| 0.3% |
|
|
| 0.0% |
| 0.2% |
|
| ||
FHLB stock |
| 1.2% |
| 0.8% |
|
|
| 1.0% |
| 1.2% |
|
| ||
Other debt securities and other investments |
| 0.2% |
|
| 0.2% |
|
|
| 0.1% |
|
| 0.1% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
| 100.0% |
|
| 100.0% |
|
|
118110
TABLE 5 — LOANS RECEIVABLE COMPOSITION | TABLE 5 — LOANS RECEIVABLE COMPOSITION | TABLE 5 — LOANS RECEIVABLE COMPOSITION | ||||||||||||
| September 30 |
| December 31, |
| Variance | September 30 |
| December 31 |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
| (In thousands) |
|
| (In thousands) |
|
| ||||||||
Originated and other loans and leases held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 694,476 |
| $ | 721,494 |
| -3.7% | $ | 667,224 |
| $ | 683,607 |
| -2.4% |
Commercial |
| 1,245,711 |
|
| 1,277,866 |
| -2.5% |
| 1,540,027 |
|
| 1,307,261 |
| 17.8% |
Consumer |
| 316,357 |
|
| 290,515 |
| 8.9% |
| 345,399 |
|
| 330,039 |
| 4.7% |
Auto and leasing |
| 831,437 |
|
| 756,395 |
| 9.9% |
| 1,084,912 |
|
| 883,985 |
| 22.7% |
|
| 3,087,981 |
|
| 3,046,270 |
| 1.4% |
| 3,637,562 |
|
| 3,204,892 |
| 13.5% |
Allowance for loan and lease losses on originated and other loans and leases |
| (87,541) |
|
| (59,300) |
| -47.6% |
| (95,236) |
|
| (92,718) |
| 2.7% |
|
| 3,000,440 |
|
| 2,986,970 |
| 0.5% |
| 3,542,326 |
|
| 3,112,174 |
| 13.8% |
Deferred loan costs, net |
| 6,592 |
|
| 5,766 |
| 14.3% |
| 7,556 |
|
| 6,695 |
| 12.9% |
Total originated and other loans loans held for investment, net |
| 3,007,032 |
|
| 2,992,736 |
| 0.5% | |||||||
Total originated and other loans held for investment, net |
| 3,549,882 |
|
| 3,118,869 |
| 13.8% | |||||||
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired BBVAPR loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounted for under ASC 310-20 (Loans with revolving feature and/or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquired at a premium) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| 4,612 |
|
| 5,562 |
| -17.1% |
| 2,778 |
|
| 4,380 |
| -36.6% |
Consumer |
| 29,464 |
|
| 32,862 |
| -10.3% |
| 24,914 |
|
| 28,915 |
| -13.8% |
Auto |
| 26,562 |
|
| 53,026 |
| -49.9% |
| 7,494 |
|
| 21,969 |
| -65.9% |
|
| 60,638 |
|
| 91,450 |
| -33.7% |
| 35,186 |
|
| 55,264 |
| -36.3% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20 |
| (3,363) |
|
| (4,300) |
| 21.8% |
| (2,350) |
|
| (3,862) |
| -39.2% |
|
| 57,275 |
|
| 87,150 |
| -34.3% |
| 32,836 |
|
| 51,402 |
| -36.1% |
Accounted for under ASC 310-30 (Loans acquired with deteriorated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
credit quality, including those by analogy) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 532,948 |
|
| 569,253 |
| -6.4% |
| 503,861 |
|
| 532,053 |
| -5.3% |
Commercial |
| 244,359 |
|
| 292,564 |
| -16.5% |
| 190,178 |
|
| 243,092 |
| -21.8% |
Consumer |
| 1,598 |
|
| 4,301 |
| -62.8% |
| 95 |
|
| 1,431 |
| -93.4% |
Auto |
| 49,258 |
|
| 85,676 |
| -42.5% |
| 20,363 |
|
| 43,696 |
| -53.4% |
|
| 828,163 |
|
| 951,794 |
| -13.0% |
| 714,497 |
|
| 820,272 |
| -12.9% |
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30 |
| (40,110) |
|
| (31,056) |
| -29.2% |
| (43,875) |
|
| (45,755) |
| -4.1% |
|
| 788,053 |
|
| 920,738 |
| -14.4% |
| 670,622 |
|
| 774,517 |
| -13.4% |
Total acquired BBVAPR loans, net |
| 845,328 |
|
| 1,007,888 |
| -16.1% |
| 703,458 |
|
| 825,919 |
| -14.8% |
Acquired Eurobank loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans secured by 1-4 family residential properties |
| 68,996 |
|
| 73,018 |
| -5.5% |
| 64,785 |
|
| 69,538 |
| -6.8% |
Commercial |
| 53,028 |
|
| 81,460 |
| -34.9% |
| 49,262 |
|
| 53,793 |
| -8.4% |
Consumer |
| 1,220 |
|
| 1,372 |
| -11.1% |
| 895 |
|
| 1,112 |
| -19.5% |
|
| 123,244 |
|
| 155,850 |
| -20.9% |
| 114,942 |
|
| 124,443 |
| -7.6% |
Allowance for loan and lease losses on Eurobank loans |
| (23,146) |
|
| (21,281) |
| -8.8% |
| (24,281) |
|
| (25,174) |
| -3.5% |
Total acquired Eurobank loans, net |
| 100,098 |
|
| 134,569 |
| -25.6% |
| 90,661 |
|
| 99,269 |
| -8.7% |
Total acquired loans, net |
| 945,426 |
|
| 1,142,457 |
| -17.2% |
| 794,119 |
|
| 925,188 |
| -14.2% |
Total held for investment, net |
| 3,952,458 |
|
| 4,135,193 |
| -4.4% |
| 4,344,001 |
|
| 4,044,057 |
| 7.4% |
Mortgage loans held for sale |
| 12,114 |
|
| 12,499 |
| -3.1% |
| 8,979 |
|
| 12,272 |
| -26.8% |
Total loans, net | $ | 3,964,572 |
| $ | 4,147,692 |
| -4.4% | $ | 4,352,980 |
| $ | 4,056,329 |
| 7.3% |
119111
120
Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans. Acquired Eurobank loans were purchased subject to loss-sharing agreements with the FDIC, which were terminated on February 6, 2017.
As shown in Table 5 above, total loans, net, amounted to $3.965$4.353 billion at September 30, 20172018 and $4.148$4.056 billion at December 31, 2016.2017. Oriental’s originated and other loans held-for-investment portfolio composition and trends were as follows:
· Mortgage loan portfolio amounted to $694.5$667.2 million (22.5%(18.3% of the gross originated loan portfolio) compared to $721.5$683.6 million (23.7%(21.3% of the gross originated loan portfolio) at December 31, 2016.2017. Mortgage loan production totaled $32.6$27.9 million and $121.9$86.3 million, for the quarter and nine-month period ended September 30, 2017,2018, which represents a decrease of 36.2%14.4% and 22.3%,29.2% from $51.0$32.6 million and $157.0$121.9 million, respectively, for the same periods in 2016.2017. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $13.0$13.3 million and $9.7$8.3 million at September 30, 20172018 and December 31, 2016,2017, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.
· Commercial loan portfolio amounted to $1.246$1.540 billion (40.3%(42.3% of the gross originated loan portfolio) compared to $1.278$1.307 billion (42.0%(40.8% of the gross originated loan portfolio) at December 31, 2016.2017. Commercial loan production, decreased 26.3% to $46.2including the U.S. loan program production of $37.4 million and $211.4 million for the quarter ended September 30, 2017, from $62.6 million for the same period in 2016. Also, for theand nine-month period ended September 30, 2017, the production decreased 16.9%2018, respectively, increased 209.01% and 181.34% to $173.0$142.7 million and $486.7 million, respectively, from $208.2$46.2 million and $173.0 million for the same periodperiods in 2016.2017.
· Consumer loan portfolio amounted to $316.4$345.4 million (10.3%(9.5% of the gross originated loan portfolio) compared to $290.5$330.0 million (9.5%(10.3% of the gross originated loan portfolio) at December 31, 2016.2017. Consumer loan production decreased 22.7%increased 27.4% to $33.7$43.0 million for the quarter ended September 30, 20172018 from $43.6$33.7 million for the same periodsperiod in 2016. However,2017, but decreased 2.2% to $122.8 million for the nine-month period ended September 30, 2017, the production increased 6.9% to2018 from $125.5 million from $117.5 million forwhen compared to the same period in 2016.2017.
· Auto and leasing portfolio amounted to $831.4 million (26.9%$1.085 billion (29.9% of the gross originated loan portfolio) compared to $756.4$884.0 million (24.8%(27.6% of the gross originated loan portfolio) at December 31, 2016.2017. Auto and leasing production increased by 12.6%79.3% and 17.6%64.0% to $78.3$140.4 million and $243.7$399.6 million, respectively, for the quarter and nine-month period ended September 30, 2017, respectively,2018, compared to $69.5$78.3 million and $207.2$243.7 million, respectively, for the same periods in 2016.2017.
121113
TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS | TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS | TABLE 6 — HIGHER RISK RESIDENTIAL MORTGAGE LOANS | ||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||
| September 30, 2017 | September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||
| Higher-Risk Residential Mortgage Loans* | Higher-Risk Residential Mortgage Loans* | ||||||||||||||||||||||||||||||||||||||||||||
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|
|
| High Loan-to-Value Ratio Mortgages |
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|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
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|
|
| Carrying |
|
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|
| Carrying |
|
|
|
| ||||||||||||
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage | Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage |
| Value |
| Allowance |
| Coverage | ||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Delinquency: |
|
|
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|
|
|
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|
|
|
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| ||||||||||
0 - 89 days | $ | 9,977 |
| $ | 321 |
| 3.22% |
| $ | 9,970 |
| $ | 801 |
| 8.03% |
| $ | 72,168 |
| $ | 1,819 |
| 2.52% | $ | 9,021 |
| $ | 327 |
| 3.62% |
| $ | 8,044 |
| $ | 319 |
| 3.97% |
| $ | 61,860 |
| $ | 1,468 |
| 2.37% |
90 - 119 days |
| 17 |
| 2 |
| 11.76% |
| - |
| - |
| 0.00% |
| 2,051 |
| 29 |
| 1.41% |
| 170 |
| 10 |
| 5.88% |
| - |
| - |
| 0.00% |
| 1,623 |
| 31 |
| 1.91% | ||||||||||
120 - 179 days |
| 51 |
| 8 |
| 15.69% |
| - |
| - |
| 0.00% |
| 473 |
| 9 |
| 1.90% |
| 132 |
| 10 |
| 7.58% |
| 128 |
| 17 |
| 13.28% |
| 829 |
| 47 |
| 5.67% | ||||||||||
180 - 364 days |
| 78 |
| 7 |
| 8.97% |
| 209 |
| 52 |
| 24.88% |
| 1,749 |
| 156 |
| 8.92% |
| 94 |
| 7 |
| 7.45% |
| 472 |
| 60 |
| 12.71% |
| 1,541 |
| 117 |
| 7.59% | ||||||||||
365+ days |
| 438 |
|
| 72 |
| 16.44% |
|
| 2,311 |
|
| 576 |
| 24.92% |
|
| 8,347 |
|
| 790 |
| 9.46% |
| 297 |
|
| 39 |
| 13.13% |
|
| 1,399 |
|
| 194 |
| 13.87% |
|
| 7,750 |
|
| 558 |
| 7.20% |
Total | $ | 10,561 |
| $ | 410 |
| 3.88% |
| $ | 12,490 |
| $ | 1,429 |
| 11.44% |
| $ | 84,788 |
| $ | 2,803 |
| 3.31% | $ | 9,714 |
| $ | 393 |
| 4.05% |
| $ | 10,043 |
| $ | 590 |
| 5.87% |
| $ | 73,603 |
| $ | 2,221 |
| 3.02% |
Percentage of total loans excluding acquired loans accounted for under ASC 310-30 |
| 0.34% |
|
|
|
|
|
|
| 0.40% |
|
|
|
|
|
|
| 2.69% |
|
|
|
|
|
| 0.26% |
|
|
|
|
|
|
| 0.27% |
|
|
|
|
|
|
| 2.00% |
|
|
|
|
|
Refinanced or Modified Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
|
|
| ||||||
Amount | $ | 2,077 |
| $ | 223 |
| 10.74% |
| $ | 540 |
| $ | 52 |
| 9.63% |
| $ | 16,390 |
| $ | 1,215 |
| 7.41% | $ | 2,277 |
| $ | 283 |
| 12.43% |
| $ | 517 |
| $ | 64 |
| 12.38% |
| $ | 16,627 |
| $ | 1,354 |
| 8.14% |
Percentage of Higher-Risk Loan Category |
| 19.67% |
|
|
|
|
|
|
| 4.32% |
|
|
|
|
|
|
| 19.33% |
|
|
|
|
|
| 23.44% |
|
|
|
|
|
|
| 5.15% |
|
|
|
|
|
|
| 22.59% |
|
|
|
|
|
Loan-to-Value Ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Under 70% | $ | 6,999 |
| $ | 261 |
| 3.73% |
| $ | 770 |
| $ | 61 |
| 7.92% |
| $ | - |
| $ | - |
| - | $ | 6,426 |
| $ | 235 |
| 3.66% |
| $ | 976 |
| $ | 33 |
| 3.38% |
| $ | - |
| $ | - |
| - |
70% - 79% |
| 1,542 |
| 91 |
| 5.90% |
| 3,290 |
| 303 |
| 9.21% |
| - |
| - |
| - |
| 1,480 |
| 88 |
| 5.95% |
| 2,445 |
| 102 |
| 4.17% |
| - |
| - |
| - | ||||||||||
80% - 89% |
| 516 |
| 24 |
| 4.65% |
| 2,538 |
| 296 |
| 11.66% |
| - |
| - |
| - |
| 1,004 |
| 7 |
| 0.70% |
| 2,630 |
| 176 |
| 6.69% |
| - |
| - |
| - | ||||||||||
90% and over |
| 1,504 |
|
| 34 |
| 2.26% |
|
| 5,892 |
|
| 769 |
| 13.05% |
|
| 84,788 |
|
| 2,803 |
| 3.31% |
| 804 |
|
| 63 |
| 7.84% |
|
| 3,992 |
|
| 279 |
| 6.99% |
|
| 73,603 |
|
| 2,221 |
| 3.02% |
| $ | 10,561 |
| $ | 410 |
| 3.88% |
| $ | 12,490 |
| $ | 1,429 |
| 11.44% |
| $ | 84,788 |
| $ | 2,803 |
| 3.31% | $ | 9,714 |
| $ | 393 |
| 4.05% |
| $ | 10,043 |
| $ | 590 |
| 5.87% |
| $ | 73,603 |
| $ | 2,221 |
| 3.02% |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
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|
|
* 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. |
122114
The following table includes Oriental's lending and investment exposure to the Puerto Rico government, including its agencies, instrumentalities, municipalities and public corporations: | |||||||||||||||||
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|
|
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|
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|
TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017 | |||||||||||||||||
|
|
|
|
|
|
|
|
| Maturity |
|
|
|
|
|
|
|
|
Loans and Securities: |
|
| Carrying Value |
|
| Less than 1 Year |
|
| 1 to 3 Years |
|
| More than 3 Years |
| Comments | |||
|
| (In thousands) |
|
|
|
|
| ||||||||||
Municipalities |
| $ | 144,529 |
| $ | 5,265 |
| $ | 95,622 |
| $ | 43,642 |
|
| Secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. | ||
Investment securities |
|
| 2,206 |
|
| 2,206 |
|
| - |
|
| - |
|
| The remaining position is a PRHTA security maturing July 1, 2018 issued for P3 Project Teodoro Moscoso Bridge operated by private companies that have the payment obligation. | ||
Total |
| $ | 146,735 |
| $ | 7,471 |
| $ | 95,622 |
| $ | 43,642 |
|
|
|
|
|
Deposits from the Puerto Rico government totaled $285.0 million at September 30, 2018. 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. | ||||||||||||
|
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|
|
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|
|
|
|
|
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|
|
TABLE 7 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018 | ||||||||||||
|
|
|
|
|
|
|
|
| Maturity |
|
|
|
Loans and Securities: |
|
| Carrying Value |
|
| Less than 1 Year |
|
| 1 to 3 Years |
|
| More than 3 Years |
|
| (In thousands) | ||||||||||
Municipalities |
| $ | 135,341 |
| $ | 18,567 |
| $ | 73,167 |
| $ | 43,607 |
Some highlights follow regarding the data included above:
·Deposits from the Puerto Rico government totaled $135.8 million at September 30, 2017.
123115
Credit Risk Management
Allowance for Loan and Lease Losses
Oriental maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. Oriental’s allowance for loan and lease losses ("ALLL") policy provides for a detailed quarterly analysis of probable losses.
The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors. While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond Oriental’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to the acquisition, and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition.
At September 30, 2017,2018, Oriental’s allowance for loan and lease losses amounted to $154.2$165.7 million, a $38.2$1.8 million increasedecrease from $115.9$167.5 million at December 31, 2016.2017.
During the third quarter of 2017,As discussed in the span of two weeks in September,Note 2, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Although the effect of the hurricanes on Oriental's loan portfolio is difficult to predict at this time, managementRico in 2017. Management performed an evaluation of the loan portfolios in order to assess the impact on repayment sources and underlying collateral that could result in additional losses.
TheFor the commercial portfolio, the framework for the analysis was based on our current ALLLallowance for loan and lease losses methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additional reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment.
For commercial portfolios,
116
As part of the process, Oriental contacted its clients to evaluate the impact of the hurricanes on their business operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sources of repayment, but had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of repayment. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output.
During the fourth quarter of 2017, Oriental performed an update of the initial estimate, taking into consideration the most recent available information gathered through additional visits and interviews with clients and the economic environment in Puerto Rico.
For the retail portfolios, (residential mortgage, consumer and auto), managementauto, the assumptions established assumptionsin the initial estimate were based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment (forfor all portfolios)portfolios and the location of the collateral (for residential loans). for mortgage loans. During the fourth quarter of 2017, Oriental performed additional procedures to evaluate the reasonability of the initial estimate based on the payment experience percentage of borrowers for which the deferral period expired. The analysis took into consideration historical payment behavior and loss experience of borrowers (PDs and LGDs) of each portfolio segment to develop a range of estimated potential losses. Management understands that this approach is reasonable given the lack of historical information related to the behavior of local borrowers in such an unprecedented event. The amount used in the analysis represents the average of potential outcomes of expected losses.
BasedDuring the first quarter of 2018, Oriental updated the previously performed analysis to estimate probable losses related to the hurricanes. Analyses were based on our assessmentthe payment experience percentage of borrowers for which the deferral period expired in retail portfolios. For the commercial portfolio, no changes in the level of impact assessed were identified based on communications with credit officers. During the second and third quarters of 2018, Oriental continued its monitoring process of the factsperformance of those affected borrowers. As additional information became available, it was incorporated into the allowance framework.
At September 30, 2018 and December 31, 2017, Oriental's allowance for loan and lease losses incorporated all risks associated to our loan portfolio, including the impact of hurricanes Irma and Maria. At September 30, 2018 and December 31, 2017, allowance for loan and lease losses related to these hurricanes we have increased our provision for loan losses $27.0 million. The increase in the allowance corresponding to our originated loan portfolioIrma and María was $16.8 million: $3.8$17.5 million in mortgage loans, $7.6and $32.4 million, in commercial loans, $800 thousand in consumer loans, and $4.6 million in auto loans. The increase in the allowance corresponding to our acquired loan portfolio was $10.2 million: $2.7 million in mortgage loans, $7.0 million in commercial loans, $100 thousand in consumer loans, and $400 thousand in auto loans.
The documentation for the assessment considers all information available at the moment; gathered through visits or interviews with our clients, inspections of collaterals, identification of most affected areas and industries. Oriental will continue to assess the impact to our customers and our businesses as a result of the hurricanes and refine our estimates as more information becomes available. respectively.
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.
124117
Non-performing Assets
Oriental’s non-performing assets include non-performing loans and foreclosed real estate (see Tables 11 and 12). At September 30, 20172018 and December 31, 2016,2017, Oriental had $93.0$120.8 million and $104.1$99.7 million, respectively, of non-accrual loans, including acquired BBVAPR loans accounted for under ASC 310-20 (loans with revolving feature and/or acquired at a premium).
At September 30, 20172018 and December 31, 2016,2017, loans whose terms have been extended and which are classified as troubled-debt restructuring that are not included in non-performing assets amounted to $109.8$97.7 million and $98.1$109.2 million, respectively.
At September 30, 2018 and December 31, 2017, loans that are current in their monthly payments, but placed in non-accrual amounted to $23.6 million and $20.1 million, respectively. During the nine-month period ended September 30, 2018, a $8.9 million loan that is current in its monthly payments was placed in non-accrual due to credit deterioration after the hurricanes.
Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due, but are not placed in non-accrual status until they become 1812 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans.
Acquired loans with credit deterioration are considered to be performing due to the application of the accretion method under ASC 310-30, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses. Credit related decreases in expected cash flows, compared to those previously forecasted are recognized by recording a provision for credit losses on these loans when it is probable that all cash flows expected at acquisition will not be collected.
Following hurricanes Irma and Maria, Oriental offered automatic payment deferrals and 90-day extensions for most loan categories. All of these payment moratoriums expired during the nine-month period ended September 30, 2018 with most credit metrics better than, or returned to, pre-hurricanes levels.
At September 30, 2017,2018, Oriental’s non-performing assets decreasedincreased by 5.1%7.9% to $148.9$169.0 million (2.76%(2.65% of total assets, excluding acquired loans with deteriorated credit quality) from $156.9$156.7 million (2.88%(2.95% of total assets, excluding acquired loans with deteriorated credit quality) at December 31, 2016.2017. Foreclosed real estate and other repossessed assets amounting to $37.9 million and $4.1 million, respectively, at September 30, 2018, and $44.2 million and $3.5 million, respectively, at December 31, 2017, were recorded at fair value. Oriental does not expect non-performing loans to result in significantly higher losses. At September 30, 2017,2018, the allowance coverage ratio for originated loan and lease losses to non-performing loans coverage ratio was 91.55% (56.30%75.98% (87.35% at December 31, 2016)2017).
Oriental follows a conservative residential mortgage lending policy, with more than 90% of its residential mortgage portfolio consisting of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk associated with subprime loans offered by certain major U.S. mortgage loan originators. Furthermore, Oriental has never been active in negative amortization loans or adjustable rate mortgage loans, including those with teaser rates.
The following items comprise non-performing assets:
· Originated and other loans held for investment:
Residential mortgage loans — are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan, except for FHA and VA insured mortgage loans which are placed in non-accrual when they become 1812 months or more past due. At September 30, 2017,2018, Oriental’s originated non-performing mortgage loans totaled $59.7$67.2 million (61.0%(52.8% of Oriental’s non-performing loans), a 19.9% decrease4.9% increase from $74.5$64.1 million (68.9%(58.7% of Oriental’s non-performing loans) at December 31, 2016.2017.
Commercial loans — are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the underlying collateral, if any. At September 30, 2017,2018, Oriental’s originated non-performing commercial loans amounted to $21.7$42.8 million (22.2%(33.7% of Oriental’s non-performing loans), an 9.7%a 21.4% increase from $19.8$35.3 million at December 31, 2016 (18.3%2017 (32.4% of Oriental’s non-performing loans). This increase is mainly from a $8.9 million loan that is current in its monthly payments but was placed in non-accrual during the nine-month period ended September 30, 2018 due to credit deterioration after the hurricanes.
118
Consumer loans — are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit. At September 30, 2017,2018, Oriental’s originated non-performing consumer loans amounted to $2.4$3.1 million (2.5% of Oriental’s non-performing loans), a 23.1%21.2% increase from $2.0$2.6 million at December 31, 2016 (1.8%2017 (2.4% of Oriental’s non-performing loans).
Auto loans and leases — are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. At September 30, 2017,2018, Oriental’s originated non-performing auto loans and leases amounted to $11.8$12.2 million (12.1%(9.6% of Oriental’s total non-performing loans), an increase of 30.5%187.9% from $9.1$4.2 million at December 31, 2016 (8.4%2017 (3.9% of Oriental’s total non-performing loans).
·Acquired BBVAPR loans accounted for under ASC 310-20 (loans with revolving features and/or acquired at premium):
125
Commercial revolving lines of credit and credit cards — are placed on non-accrual status when they become 90 days or more past, mainly due and are written-down, if necessary, based onto higher balance in the specific evaluation of the underlying collateral, if any. At September 30, 2017, Oriental’s acquired non-performing commercial lines of credit accounted for under ASC 310-20 amounted to $1.1 million (1.2% of Oriental’s non-performing loans), a 19.4% decrease from $1.4 million at December 31, 2016 (1.3% of Oriental’s non-performing loans).
Consumer revolving lines of credit and credit cards — are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 180 days. At September 30, 2017, Oriental’s acquired non-performing consumer lines of credit and credit cards accounted for under ASC 310-20 totaled $506 thousand (0.5% of Oriental’s non-performing loans), a 38.9% decrease from $828 thousand at December 31, 2016 (0.8% of Oriental’s non-performing loans).
Auto loans acquired at premium - are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. At September 30, 2017, Oriental’s acquired non-performing auto loans accounted for under ASC 310-20 totaled $481 thousand (0.5% of Oriental’s non-performing loans), a 12.9% decrease from $552 thousand at December 31, 2016 (0.5% of Oriental’s non-performing loans).portfolio.
Oriental has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-traditional Mortgage Loan Program. Both programs are intended to help responsible homeowners to remain in their homes and avoid foreclosure, while also reducing Oriental’s losses on non-performing mortgage loans.
The Loss Mitigation Program helps mortgage borrowers who are or will become financially unable to meet the current or scheduled mortgage payments. Loans that qualify under this program are those guaranteed by FHA, VA, RURAL, PRHFA, conventional loans guaranteed by Mortgage Guaranty Insurance Corporation (MGIC), conventional loans sold to FNMA and FHLMC, and conventional loans retained by Oriental. The program offers diversified alternatives such as regular or reduced payment plans, payment moratorium, mortgage loan modification, partial claims (only FHA), short sale, and payment in lieu of foreclosure.
The Non-traditional Mortgage Loan Program is for non-traditional mortgages, including balloon payment, interest only/interestsinterest first, variable interest rate, adjustable interest rate and other qualified loans. Non-traditional mortgage loan portfolios are segregated into the following categories: performing loans that meet secondary market requirement and are refinanced under the credit underwriting guidelines of FHA/VA/FNMA/ FHLMC, and performing loans not meeting secondary market guidelines processed bypursuant Oriental’s current credit and underwriting guidelines. Oriental achieved an affordable and sustainable monthly payment by taking specific, sequential, and necessary steps such as reducing the interest rate, extending the loan term, capitalizing arrearages, deferring the payment of principal or, if the borrower qualifies, refinancing the loan.
In order to apply for any of the loan modification programs, if the borrower is active in Chapter 13 bankruptcy, theyit 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.
126119
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN | TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN | TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | September 30, |
| December 31, |
| Variance | ||||
|
| 2017 |
| 2016 |
| % |
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Originated and other loans held for investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 22,308 |
| $ | 17,344 |
| 28.6% | $ | 19,545 |
| $ | 20,439 |
| -4.4% |
Commercial |
| 24,278 |
|
| 8,995 |
| 169.9% |
| 32,491 |
|
| 30,258 |
| 7.4% |
Consumer |
| 15,793 |
|
| 13,067 |
| 20.9% |
| 15,715 |
|
| 16,454 |
| -4.5% |
Auto and leasing |
| 25,162 |
|
| 19,463 |
| 29.3% |
| 27,485 |
|
| 25,567 |
| 7.5% |
Unallocated allowance |
| - |
|
| 431 |
| -100.0% | |||||||
Total allowance balance | $ | 87,541 |
| $ | 59,300 |
| 47.6% | $ | 95,236 |
| $ | 92,718 |
| 2.7% |
Allowance composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 25.49% |
|
| 29.24% |
| -12.8% |
| 20.5% |
|
| 22.0% |
| -6.9% |
Commercial |
| 27.73% |
|
| 15.17% |
| 82.8% |
| 34.1% |
|
| 32.6% |
| 4.6% |
Consumer |
| 18.04% |
|
| 22.04% |
| -18.1% |
| 16.5% |
|
| 17.8% |
| -7.0% |
Auto and leasing |
| 28.74% |
|
| 32.82% |
| -12.4% |
| 28.9% |
|
| 27.6% |
| 4.6% |
Unallocated allowance |
| 0.00% |
|
| 0.73% |
| -100.0% | |||||||
|
| 100.00% |
|
| 100.00% |
|
|
| 100.0% |
|
| 100.0% |
|
|
Allowance coverage ratio at end of period applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 3.21% |
|
| 2.40% |
| 33.8% |
| 2.93% |
|
| 2.99% |
| -2.0% |
Commercial |
| 1.95% |
|
| 0.70% |
| 178.6% |
| 2.11% |
|
| 2.31% |
| -8.7% |
Consumer |
| 4.99% |
|
| 4.50% |
| 10.9% |
| 4.55% |
|
| 4.99% |
| -8.8% |
Auto and leasing |
| 3.03% |
|
| 2.57% |
| 17.9% |
| 2.53% |
|
| 2.89% |
| -12.5% |
Total allowance to total originated loans |
| 2.83% |
|
| 1.95% |
| 45.1% |
| 2.62% |
|
| 2.89% |
| -9.3% |
Allowance coverage ratio to non-performing loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 37.39% |
|
| 23.28% |
| 60.6% |
| 29.07% |
|
| 31.89% |
| -8.8% |
Commercial |
| 111.88% |
|
| 45.46% |
| 146.1% |
| 75.90% |
|
| 85.83% |
| -11.6% |
Consumer |
| 645.93% |
|
| 657.96% |
| -1.8% |
| 504.33% |
|
| 639.74% |
| -21.2% |
Auto and leasing |
| 213.04% |
|
| 215.01% |
| -0.9% |
| 225.56% |
|
| 604.14% |
| -62.7% |
Total |
| 91.55% |
|
| 56.30% |
| 62.6% |
| 75.98% |
|
| 87.35% |
| -13.0% |
120
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
|
| 2018 |
| 2017 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-20 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Commercial | $ | 17 |
| $ | 42 |
| -59.5% |
Consumer |
| 2,140 |
|
| 3,225 |
| -33.6% |
Auto |
| 193 |
|
| 595 |
| -67.6% |
Total allowance balance | $ | 2,350 |
| $ | 3,862 |
| -39.2% |
Allowance composition: |
|
|
|
|
|
|
|
Commercial |
| 0.7% |
|
| 1.09% |
| -33.9% |
Consumer |
| 91.1% |
|
| 83.50% |
| 9.1% |
Auto |
| 8.2% |
|
| 15.41% |
| -46.7% |
|
| 100.0% |
|
| 100.00% |
|
|
Allowance coverage ratio at end of period applicable to: |
|
|
|
|
|
|
|
Commercial |
| 0.61% |
|
| 0.96% |
| -36.5% |
Consumer |
| 8.59% |
|
| 11.15% |
| -23.0% |
Auto |
| 2.58% |
|
| 2.71% |
| -4.8% |
Total allowance to total acquired loans |
| 6.68% |
|
| 6.99% |
| -4.4% |
Allowance coverage ratio to non-performing loans: |
|
|
|
|
|
|
|
Commercial |
| 1.73% |
|
| 3.31% |
| -47.7% |
Consumer |
| 427.15% |
|
| 238.01% |
| 79.5% |
Auto |
| 95.54% |
|
| 332.40% |
| -71.3% |
Total |
| 139.63% |
|
| 137.73% |
| 1.4% |
121
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
| September 30, |
| December 31, |
| Variance | ||
|
| 2018 |
| 2017 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 15,258 |
| $ | 14,085 |
| 8.3% |
Commercial |
| 22,256 |
|
| 23,691 |
| -6.1% |
Consumer |
| 18 |
|
| 18 |
| 0.0% |
Auto |
| 6,343 |
|
| 7,961 |
| -20.3% |
Total allowance balance | $ | 43,875 |
| $ | 45,755 |
| -4.1% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 34.8% |
|
| 30.8% |
| 13.0% |
Commercial |
| 50.7% |
|
| 51.8% |
| -2.0% |
Auto |
| 14.5% |
|
| 17.4% |
| -16.9% |
|
| 100.0% |
|
| 100.0% |
|
|
|
|
|
|
|
|
|
|
Acquired Eurobank loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 15,155 |
| $ | 15,187 |
| -0.2% |
Commercial |
| 9,122 |
|
| 9,983 |
| -8.6% |
Consumer |
| 4 |
|
| 4 |
| 0.0% |
Total allowance balance | $ | 24,281 |
| $ | 25,174 |
| -3.5% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 62.4% |
|
| 60.3% |
| 3.5% |
Commercial |
| 37.6% |
|
| 39.7% |
| -5.3% |
|
| 100.0% |
|
| 100.0% |
|
|
122
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
|
| Nine-Month Period Ended September 30, | ||||||||||||
|
|
| Variance |
|
|
|
| Variance | ||||||||
| 2018 |
| 2017 |
| % |
|
| 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) | |||||||||||||||
Originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 94,218 |
| $ | 69,666 |
| 35.2% |
|
| $ | 92,718 |
| $ | 59,300 |
| 56.4% |
Provision for loan and lease losses |
| 13,420 |
|
| 29,690 |
| -54.8% |
|
|
| 41,219 |
|
| 64,243 |
| -35.8% |
Charge-offs |
| (18,380) |
|
| (15,372) |
| 19.6% |
|
|
| (55,403) |
|
| (48,317) |
| 14.7% |
Recoveries |
| 5,978 |
|
| 3,557 |
| 68.1% |
|
|
| 16,702 |
|
| 12,315 |
| 35.6% |
Balance at end of period | $ | 95,236 |
| $ | 87,541 |
| 8.8% |
|
| $ | 95,236 |
| $ | 87,541 |
| 8.8% |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBVAPR loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 2,726 |
| $ | 3,348 |
| -18.6% |
|
| $ | 3,862 |
| $ | 4,300 |
| -10.2% |
Provision for loan and lease losses |
| 68 |
|
| 712 |
| -90.4% |
|
|
| (43) |
|
| 618 |
| -107.0% |
Charge-offs |
| (711) |
|
| (933) |
| -23.8% |
|
|
| (2,371) |
|
| (3,204) |
| -26.0% |
Recoveries |
| 267 |
|
| 236 |
| 13.1% |
|
|
| 902 |
|
| 1,649 |
| -45.3% |
Balance at end of period | $ | 2,350 |
| $ | 3,363 |
| -30.1% |
|
| $ | 2,350 |
| $ | 3,363 |
| -30.1% |
Acquired loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 44,176 |
| $ | 37,494 |
| 17.8% |
|
| $ | 45,755 |
| $ | 31,056 |
| 47.3% |
Provision for loan and lease losses |
| 807 |
|
| 11,099 |
| -92.7% |
|
|
| 2,528 |
|
| 18,798 |
| -86.6% |
Allowance de-recognition |
| (1,108) |
|
| (8,483) |
| -86.9% |
|
|
| (4,408) |
|
| (9,744) |
| -54.8% |
Balance at end of period | $ | 43,875 |
| $ | 40,110 |
| 9.4% |
|
| $ | 43,875 |
| $ | 40,110 |
| 9.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 24,314 |
| $ | 21,786 |
| 11.6% |
|
| $ | 25,174 |
| $ | 21,281 |
| 18.3% |
Provision for loan and lease losses |
| 306 |
|
| 2,541 |
| -88.0% |
|
|
| 1,110 |
|
| 4,573 |
| -75.7% |
Allowance de-recognition |
| (339) |
|
| (1,182) |
| -71.3% |
|
|
| (2,003) |
|
| (2,709) |
| -26.1% |
Balance at end of period | $ | 24,281 |
| $ | 23,145 |
| 4.9% |
|
| $ | 24,281 |
| $ | 23,145 |
| 4.9% |
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 | ||||||||
| 2018 |
| 2017 |
| % |
| 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) | ||||||||||||||
Originated and other loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (1,429) |
| $ | (834) |
| 71.3% |
| $ | (3,727) |
| $ | (5,375) |
| -30.7% |
Recoveries |
| 139 |
|
| 341 |
| -59.2% |
|
| 919 |
|
| 458 |
| 100.7% |
Total |
| (1,290) |
|
| (493) |
| 161.7% |
|
| (2,808) |
|
| (4,917) |
| -42.9% |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (3,249) |
|
| (727) |
| 346.9% |
|
| (6,396) |
|
| (6,424) |
| -0.4% |
Recoveries |
| 119 |
|
| 654 |
| -81.8% |
|
| 528 |
|
| 880 |
| -40.0% |
Total |
| (3,130) |
|
| (73) |
| 4187.7% |
|
| (5,868) |
|
| (5,544) |
| 5.8% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (4,591) |
|
| (4,424) |
| 3.8% |
|
| (13,438) |
|
| (11,792) |
| 14.0% |
Recoveries |
| 278 |
|
| 168 |
| 65.5% |
|
| 757 |
|
| 1,113 |
| -32.0% |
Total |
| (4,313) |
|
| (4,256) |
| 1.3% |
|
| (12,681) |
|
| (10,679) |
| 18.7% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (9,111) |
|
| (9,387) |
| -2.9% |
|
| (31,842) |
|
| (24,726) |
| 28.8% |
Recoveries |
| 5,442 |
|
| 2,394 |
| 127.3% |
|
| 14,498 |
|
| 9,864 |
| 47.0% |
Total |
| (3,669) |
|
| (6,993) |
| -47.5% |
|
| (17,344) |
|
| (14,862) |
| 16.7% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (18,380) |
|
| (15,372) |
| 19.6% |
|
| (55,403) |
|
| (48,317) |
| 14.7% |
Total recoveries |
| 5,978 |
|
| 3,557 |
| 68.1% |
|
| 16,702 |
|
| 12,315 |
| 35.6% |
Total | $ | (12,402) |
| $ | (11,815) |
| 5.0% |
| $ | (38,701) |
| $ | (36,002) |
| 7.5% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 0.77% |
|
| 0.28% |
| 175.0% |
|
| 0.55% |
|
| 0.94% |
| -41.2% |
Commercial |
| 0.83% |
|
| 0.02% |
| 4050.0% |
|
| 0.55% |
|
| 0.59% |
| -7.2% |
Consumer |
| 5.35% |
|
| 5.65% |
| -5.3% |
|
| 5.32% |
|
| 4.89% |
| 8.8% |
Auto |
| 1.40% |
|
| 3.37% |
| -58.5% |
|
| 2.34% |
|
| 2.47% |
| -5.1% |
Total |
| 1.39% |
|
| 1.54% |
| -9.7% |
|
| 1.52% |
|
| 1.58% |
| -3.6% |
Recoveries to charge-offs |
| 32.52% |
|
| 23.14% |
| 40.5% |
|
| 30.15% |
|
| 25.49% |
| 18.3% |
Average originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 672,526 |
|
| 692,782 |
| -2.9% |
| $ | 678,334 |
|
| 701,039 |
| -3.2% |
Commercial |
| 1,513,556 |
|
| 1,239,390 |
| 22.1% |
|
| 1,412,108 |
|
| 1,247,249 |
| 13.2% |
Consumer |
| 322,553 |
|
| 301,121 |
| 7.1% |
|
| 317,673 |
|
| 291,140 |
| 9.1% |
Auto |
| 1,048,617 |
|
| 829,446 |
| 26.4% |
|
| 988,830 |
|
| 803,821 |
| 23.0% |
Total | $ | 3,557,252 |
| $ | 3,062,739 |
| 16.1% |
| $ | 3,396,945 |
| $ | 3,043,249 |
| 11.6% |
124
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 | ||||||||
| 2018 |
| 2017 |
|
| % |
| 2018 |
| 2017 |
|
| % | ||||
| (Dollars in thousands) | ||||||||||||||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (1) |
| $ | - |
|
| -100.0% |
| $ | (6) |
| $ | (132) |
|
| -95.5% |
Recoveries |
| 3 |
|
| 1 |
|
| 200.0% |
|
| 18 |
|
| 6 |
|
| 200.0% |
Total |
| 2 |
|
| 1 |
|
| 100.0% |
|
| 12 |
|
| (126) |
|
| -109.5% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (638) |
|
| (711) |
|
| -10.3% |
|
| (2,080) |
|
| (2,367) |
|
| -12.1% |
Recoveries |
| 95 |
|
| 33 |
|
| 187.9% |
|
| 243 |
|
| 392 |
|
| -38.0% |
Total |
| (543) |
|
| (678) |
|
| -19.9% |
|
| (1,837) |
|
| (1,975) |
|
| -7.0% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (72) |
|
| (222) |
|
| -67.6% |
|
| (285) |
|
| (705) |
|
| -59.6% |
Recoveries |
| 169 |
|
| 202 |
|
| -16.3% |
|
| 641 |
|
| 1,251 |
|
| -48.8% |
Total |
| 97 |
|
| (20) |
|
| -585.0% |
|
| 356 |
|
| 546 |
|
| -34.8% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (711) |
|
| (933) |
|
| -23.8% |
|
| (2,371) |
|
| (3,204) |
|
| -26.0% |
Total recoveries |
| 267 |
|
| 236 |
|
| 13.1% |
|
| 902 |
|
| 1,649 |
|
| -45.3% |
Total | $ | (444) |
| $ | (697) |
|
| -36.3% |
| $ | (1,469) |
| $ | (1,555) |
|
| -5.5% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| -2.76% |
|
| -1.06% |
|
| 160.7% |
|
| -4.79% |
|
| 42.64% |
|
| -111.2% |
Consumer |
| 4.06% |
|
| 4.69% |
|
| -13.4% |
|
| 4.48% |
|
| 6.91% |
|
| -35.2% |
Auto |
| -2.05% |
|
| 0.23% |
|
| -977.8% |
|
| -2.04% |
|
| -1.75% |
|
| 16.7% |
Total |
| 2.44% |
|
| 3.01% |
|
| -18.9% |
|
| 2.50% |
|
| 2.59% |
|
| -3.3% |
Recoveries to charge-offs |
| 37.55% |
|
| 25.29% |
|
| 48.5% |
|
| 38.04% |
|
| 51.47% |
|
| -26.1% |
Average loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 290 |
|
| 378 |
|
| -23.3% |
| $ | 334 |
|
| 394 |
|
| -15.2% |
Consumer |
| 53,474 |
|
| 57,839 |
|
| -7.5% |
|
| 54,687 |
|
| 38,088 |
|
| 43.6% |
Auto |
| 18,971 |
|
| 34,334 |
|
| -44.7% |
|
| 23,265 |
|
| 41,632 |
|
| -44.1% |
Total | $ | 72,735 |
| $ | 92,551 |
|
| -21.4% |
| $ | 78,286 |
| $ | 80,114 |
|
| -2.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
TABLE 11 — NON-PERFORMING ASSETS | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| (%) | ||
| (Dollars in thousands) |
|
| ||||
Non-performing assets: |
|
|
|
|
|
|
|
Non-accruing loans |
|
|
|
|
|
|
|
Troubled-Debt Restructuring loans | $ | 42,278 |
| $ | 25,354 |
| 66.8% |
Other loans |
| 78,511 |
|
| 74,360 |
| 5.6% |
Accruing loans |
|
|
|
|
|
|
|
Troubled-Debt Restructuring loans |
| 5,484 |
|
| 6,704 |
| -18.2% |
Other loans |
| 754 |
|
| 2,528 |
| -70.2% |
Total non-performing loans | $ | 127,027 |
| $ | 108,946 |
| 16.6% |
Foreclosed real estate |
| 37,868 |
|
| 44,174 |
| -14.3% |
Other repossessed assets |
| 4,146 |
|
| 3,548 |
| 16.9% |
| $ | 169,041 |
| $ | 156,668 |
| 7.9% |
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy) |
| 2.65% |
|
| 2.95% |
| -10.2% |
Non-performing assets to total capital |
| 17.43% |
|
| 16.58% |
| 5.1% |
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
|
| Nine-Month Period Ended September 30, | ||||||||
| 2018 |
| 2017 |
|
| 2018 |
| 2017 | ||||
| (In thousands) | |||||||||||
Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans | $ | 1,101 |
| $ | 1,037 |
|
| $ | 2,652 |
| $ | 2,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TABLE 12 — NON-PERFORMING LOANS | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Non-performing loans: |
|
|
|
|
|
|
|
Originated and other loans held for investment |
|
|
|
|
|
|
|
Mortgage | $ | 67,236 |
| $ | 64,085 |
| 4.9% |
Commercial |
| 42,807 |
|
| 35,253 |
| 21.4% |
Consumer |
| 3,116 |
|
| 2,572 |
| 21.2% |
Auto and leasing |
| 12,185 |
|
| 4,232 |
| 187.9% |
|
| 125,344 |
|
| 106,142 |
| 18.1% |
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 980 |
|
| 1,270 |
| -22.8% |
Consumer |
| 501 |
|
| 1,355 |
| -63.0% |
Auto |
| 202 |
|
| 179 |
| 12.8% |
|
| 1,683 |
|
| 2,804 |
| -40.0% |
Total | $ | 127,027 |
| $ | 108,946 |
| 16.6% |
Non-performing loans composition percentages: |
|
|
|
|
|
|
|
Originated loans |
|
|
|
|
|
|
|
Mortgage |
| 52.8% |
|
| 58.7% |
|
|
Commercial |
| 33.7% |
|
| 32.4% |
|
|
Consumer |
| 2.5% |
|
| 2.4% |
|
|
Auto and leasing |
| 9.6% |
|
| 3.9% |
|
|
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 0.8% |
|
| 1.2% |
|
|
Consumer |
| 0.4% |
|
| 1.2% |
|
|
Auto |
| 0.2% |
|
| 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) |
| 3.46% |
|
| 3.34% |
| 3.6% |
Total assets, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.99% |
|
| 2.05% |
| -2.9% |
Total capital |
| 13.10% |
|
| 11.53% |
| 13.6% |
Non-performing loans with partial charge-offs to: |
|
|
|
|
|
|
|
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.19% |
|
| 1.15% |
| 3.48% |
Non-performing loans |
| 34.44% |
|
| 34.49% |
| -0.1% |
Other non-performing loans ratios: |
|
|
|
|
|
|
|
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken |
| 55.96% |
|
| 57.69% |
| -3.0% |
Allowance for loan and lease losses to non-performing loans on which no charge-offs have been taken |
| 117.17% |
|
| 134.26% |
| -12.7% |
|
|
|
|
|
|
|
|
127
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
|
| 2017 |
| 2016 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-20 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Commercial | $ | 41 |
| $ | 169 |
| -75.7% |
Consumer |
| 2,591 |
|
| 3,028 |
| -14.4% |
Auto |
| 731 |
|
| 1,103 |
| -33.7% |
Total allowance balance | $ | 3,363 |
| $ | 4,300 |
| -21.8% |
Allowance composition: |
|
|
|
|
|
|
|
Commercial |
| 1.22% |
|
| 3.93% |
| -69.0% |
Consumer |
| 77.04% |
|
| 70.42% |
| 9.4% |
Auto |
| 21.74% |
|
| 25.65% |
| -15.2% |
|
| 100.00% |
|
| 100.00% |
|
|
Allowance coverage ratio at end of period applicable to: |
|
|
|
|
|
|
|
Commercial |
| 0.89% |
|
| 3.04% |
| -70.7% |
Consumer |
| 8.79% |
|
| 9.21% |
| -4.6% |
Auto |
| 2.75% |
|
| 2.08% |
| 32.2% |
Total allowance to total acquired loans |
| 5.55% |
|
| 4.70% |
| 18.1% |
Allowance coverage ratio to non-performing loans: |
|
|
|
|
|
|
|
Commercial |
| 3.59% |
|
| 11.94% |
| -69.9% |
Consumer |
| 512.06% |
|
| 365.70% |
| 40.0% |
Auto |
| 151.98% |
|
| 199.82% |
| -23.9% |
Total |
| 158.04% |
|
| 153.85% |
| 2.7% |
TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION | |||||||
| September 30, |
| December 31, |
| Variance | ||
| 2018 |
| 2017 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Deposits: |
|
|
|
|
|
|
|
Non-interest bearing deposits | $ | 1,107,567 |
| $ | 969,525 |
| 14.2% |
NOW accounts |
| 1,196,464 |
|
| 1,069,572 |
| 11.9% |
Savings and money market accounts |
| 1,243,533 |
|
| 1,251,396 |
| -0.6% |
Certificates of deposit |
| 1,538,792 |
|
| 1,507,101 |
| 2.1% |
Total deposits |
| 5,086,356 |
|
| 4,797,594 |
| 6.0% |
Accrued interest payable |
| 2,637 |
|
| 1,888 |
| 39.7% |
Total deposits and accrued interest payable |
| 5,088,993 |
|
| 4,799,482 |
| 6.0% |
Borrowings: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 378,237 |
|
| 192,869 |
| 96.1% |
Advances from FHLB |
| 73,531 |
|
| 99,643 |
| -26.2% |
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 0.0% |
Other term notes |
| 192 |
|
| 153 |
| 25.5% |
Total borrowings |
| 488,043 |
|
| 328,748 |
| 48.5% |
Total deposits and borrowings |
| 5,577,036 |
|
| 5,128,230 |
| 8.8% |
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
Derivative liabilities |
| 622 |
|
| 1,281 |
| -51.4% |
Acceptances outstanding |
| 28,682 |
|
| 27,644 |
| 3.8% |
Other liabilities |
| 80,448 |
|
| 86,791 |
| -7.3% |
Total liabilities | $ | 5,686,788 |
| $ | 5,243,946 |
| 8.4% |
Deposits portfolio composition percentages: |
|
|
|
|
|
|
|
Non-interest bearing deposits |
| 21.8% |
|
| 20.2% |
|
|
NOW accounts |
| 23.5% |
|
| 22.3% |
|
|
Savings and money market accounts |
| 24.4% |
|
| 26.1% |
|
|
Certificates of deposit |
| 30.3% |
|
| 31.4% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Borrowings portfolio composition percentages: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 77.5% |
|
| 58.7% |
|
|
Advances from FHLB |
| 15.1% |
|
| 30.3% |
|
|
Other term notes |
| 0.0% |
|
| 0.0% |
|
|
Subordinated capital notes |
| 7.4% |
|
| 11.0% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Securities sold under agreements to repurchase (excluding accrued interest) |
|
|
|
|
|
|
|
Amount outstanding at period-end | $ | 377,808 |
| $ | 192,500 |
|
|
Daily average outstanding balance | $ | 332,215 |
| $ | 393,133 |
|
|
Maximum outstanding balance at any month-end | $ | 394,164 |
| $ | 606,210 |
|
|
128
TABLE 8 — ALLOWANCE FOR LOAN AND LEASE LOSSES BREAKDOWN (CONTINUED) | |||||||
| September 30, |
| December 31, |
| Variance | ||
|
| 2017 |
| 2016 |
| % | |
| (Dollars in thousands) |
|
| ||||
Acquired BBVAPR loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 8,931 |
| $ | 2,682 |
| 233.0% |
Commercial |
| 23,941 |
|
| 23,452 |
| 2.1% |
Auto |
| 7,238 |
|
| 4,922 |
| 47.1% |
Total allowance balance | $ | 40,110 |
| $ | 31,056 |
| 29.2% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 22.27% |
|
| 8.64% |
| 157.8% |
Commercial |
| 59.68% |
|
| 75.51% |
| -21.0% |
Auto |
| 18.05% |
|
| 15.85% |
| 13.9% |
|
| 100.00% |
|
| 100.00% |
|
|
|
|
|
|
|
|
|
|
Acquired Eurobank loans accounted for under ASC 310-30 |
|
|
|
|
|
|
|
Allowance balance: |
|
|
|
|
|
|
|
Mortgage | $ | 14,219 |
| $ | 11,947 |
| 19.0% |
Commercial |
| 8,922 |
|
| 9,328 |
| -4.4% |
Consumer |
| 5 |
|
| 6 |
| -16.7% |
Total allowance balance | $ | 23,146 |
| $ | 21,281 |
| 8.8% |
Allowance composition: |
|
|
|
|
|
|
|
Mortgage |
| 61.43% |
|
| 56.14% |
| 9.4% |
Commercial |
| 38.54% |
|
| 43.83% |
| -12.1% |
Consumer |
| 0.02% |
|
| 0.03% |
| -33.3% |
|
| 100.0% |
|
| 100.0% |
|
|
129
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||
|
|
| Variance |
|
|
| Variance | ||||||||
| 2017 |
| 2016 |
| % |
| 2017 |
| 2016 |
| % | ||||
| (Dollars in thousands) | ||||||||||||||
Originated and other loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 69,666 |
| $ | 112,812 |
| -38.2% |
| $ | 59,300 |
| $ | 112,626 |
| -47.3% |
Provision for loan and lease losses |
| 29,690 |
|
| 14,708 |
| 101.9% |
|
| 64,243 |
|
| 34,420 |
| 86.6% |
Charge-offs |
| (15,372) |
|
| (69,333) |
| -77.8% |
|
| (48,317) |
|
| (95,813) |
| -49.6% |
Recoveries |
| 3,557 |
|
| 3,981 |
| -10.7% |
|
| 12,315 |
|
| 10,935 |
| 12.6% |
Balance at end of period | $ | 87,541 |
| $ | 62,168 |
| 40.8% |
| $ | 87,541 |
| $ | 62,168 |
| 40.8% |
Acquired loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BBVAPR loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 3,348 |
| $ | 4,487 |
| -25.4% |
| $ | 4,300 |
| $ | 5,542 |
| -22.4% |
Provision for loan and lease losses |
| 712 |
|
| 548 |
| 29.9% |
|
| 618 |
|
| 1,392 |
| -55.6% |
Charge-offs |
| (933) |
|
| (1,366) |
| -31.7% |
|
| (3,204) |
|
| (4,518) |
| -29.1% |
Recoveries |
| 236 |
|
| 544 |
| -56.6% |
|
| 1,649 |
|
| 1,797 |
| -8.2% |
Balance at end of period | $ | 3,363 |
| $ | 4,213 |
| -20.2% |
| $ | 3,363 |
| $ | 4,213 |
| -20.2% |
Acquired loans accounted for under ASC 310-30: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 37,494 |
| $ | 22,801 |
| 64.4% |
| $ | 31,056 |
| $ | 25,785 |
| 20.4% |
Provision for loan and lease losses |
| 11,099 |
|
| 7,403 |
| 49.9% |
|
| 18,798 |
|
| 13,245 |
| 41.9% |
Loan pools fully charged off |
| - |
|
| - |
| 0.0% |
|
| - |
|
| (282) |
| -100.0% |
Allowance de-recognition |
| (8,483) |
|
| (385) |
| 2103.4% |
|
| (9,744) |
|
| (8,929) |
| 9.1% |
Balance at end of period | $ | 40,110 |
| $ | 29,819 |
| 34.5% |
| $ | 40,110 |
| $ | 29,819 |
| 34.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eurobank loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | 21,787 |
| $ | 22,116 |
| -1.5% |
| $ | 21,281 |
| $ | 90,178 |
| -76.4% |
Provision for loan and lease losses |
| 2,541 |
|
| 819 |
| 210.3% |
|
| 4,573 |
|
| 2,655 |
| 72.2% |
FDIC shared-loss portion on recapture of loan and lease losses |
| - |
|
| 818 |
| -100.0% |
|
| - |
|
| 3,213 |
| -100.0% |
Loan pools fully charged off |
| - |
|
| - |
| 0.0% |
|
| - |
|
| (134) |
| -100.0% |
Allowance de-recognition |
| (1,182) |
|
| (941) |
| 25.6% |
|
| (2,708) |
|
| (73,100) |
| -96.3% |
Balance at end of period | $ | 23,146 |
| $ | 22,812 |
| 1.5% |
| $ | 23,146 |
| $ | 22,812 |
| 1.5% |
130
TABLE 9 — ALLOWANCE FOR LOAN AND LEASE LOSSES SUMMARY (CONTINUED) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||
|
|
| Variance |
|
|
| Variance | ||||||||
| 2017 |
| 2016 |
| % |
| 2017 |
| 2016 |
| % | ||||
Allowance for loans and lease losses on originated and other loans to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originated loans |
| 2.83% |
|
| 2.06% |
| 37.4% |
|
| 2.83% |
|
| 2.06% |
| 37.4% |
Non-performing originated loans |
| 91.55% |
|
| 56.06% |
| 63.3% |
|
| 91.55% |
|
| 56.06% |
| 63.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loans and lease losses on acquired loans accounted for under ASC 310-20 to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquired loans accounted for under ASC 310-20 |
| 5.55% |
|
| 4.04% |
| 37.4% |
|
| 5.55% |
|
| 4.04% |
| 37.4% |
Non-performing acquired loans accounted for under ASC 310-20 |
| 158.04% |
|
| 217.39% |
| -27.3% |
|
| 158.04% |
|
| 217.39% |
| -27.3% |
131
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 | ||||||||
| 2017 |
| 2016 |
| % |
| 2017 |
| 2016 |
| % | ||||
| (Dollar in thousands) | ||||||||||||||
Originated and other loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | (834) |
| $ | (1,656) |
| -49.6% |
| $ | (5,375) |
| $ | (4,692) |
| 14.6% |
Recoveries |
| 341 |
|
| 21 |
| 1523.8% |
|
| 458 |
|
| 204 |
| 124.5% |
Total |
| (493) |
|
| (1,635) |
| -69.8% |
|
| (4,917) |
|
| (4,488) |
| 9.6% |
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (727) |
|
| (56,700) |
| -98.7% |
|
| (6,424) |
|
| (58,544) |
| -89.0% |
Recoveries |
| 654 |
|
| 93 |
| 603.2% |
|
| 880 |
|
| 407 |
| 116.2% |
Total |
| (73) |
|
| (56,607) |
| -99.9% |
|
| (5,544) |
|
| (58,137) |
| -90.5% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (4,424) |
|
| (3,173) |
| 39.4% |
|
| (11,792) |
|
| (8,310) |
| 41.9% |
Recoveries |
| 168 |
|
| 120 |
| 40.0% |
|
| 1,113 |
|
| 355 |
| 213.5% |
Total |
| (4,256) |
|
| (3,053) |
| 39.4% |
|
| (10,679) |
|
| (7,955) |
| 34.2% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (9,387) |
|
| (7,804) |
| 20.3% |
|
| (24,726) |
|
| (24,267) |
| 1.9% |
Recoveries |
| 2,394 |
|
| 3,747 |
| -36.1% |
|
| 9,864 |
|
| 9,969 |
| -1.1% |
Total |
| (6,993) |
|
| (4,057) |
| 72.4% |
|
| (14,862) |
|
| (14,298) |
| 3.9% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (15,372) |
|
| (69,333) |
| -77.8% |
|
| (48,317) |
|
| (95,813) |
| -49.6% |
Total recoveries |
| 3,557 |
|
| 3,981 |
| -10.7% |
|
| 12,315 |
|
| 10,935 |
| 12.6% |
Total | $ | (11,815) |
| $ | (65,352) |
| -81.9% |
| $ | (36,002) |
| $ | (84,878) |
| -57.6% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage |
| 0.28% |
|
| 0.88% |
| -68.2% |
|
| 0.94% |
|
| 0.80% |
| 17.6% |
Commercial |
| 0.02% |
|
| 15.88% |
| -99.9% |
|
| 0.59% |
|
| 5.43% |
| -89.1% |
Consumer |
| 5.65% |
|
| 4.71% |
| 20.0% |
|
| 4.89% |
|
| 4.30% |
| 13.7% |
Auto |
| 3.37% |
|
| 2.23% |
| 51.1% |
|
| 2.47% |
|
| 2.70% |
| -8.5% |
Total |
| 1.54% |
|
| 8.27% |
| -81.4% |
|
| 1.58% |
|
| 3.62% |
| -56.3% |
Recoveries to charge-offs |
| 23.14% |
|
| 5.74% |
| 303.1% |
|
| 25.49% |
|
| 11.41% |
| 123.3% |
Average originated loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage | $ | 692,782 |
|
| 746,613 |
| -7.2% |
|
| 701,039 |
|
| 748,755 |
| -6.4% |
Commercial |
| 1,239,390 |
|
| 1,426,216 |
| -13.1% |
|
| 1,247,249 |
|
| 1,428,499 |
| -12.7% |
Consumer |
| 301,121 |
|
| 259,535 |
| 16.0% |
|
| 291,140 |
|
| 246,641 |
| 18.0% |
Auto |
| 829,446 |
|
| 727,727 |
| 14.0% |
|
| 803,821 |
|
| 705,956 |
| 13.9% |
Total | $ | 3,062,739 |
| $ | 3,160,091 |
| -3.1% |
| $ | 3,043,249 |
| $ | 3,129,851 |
| -2.8% |
132
TABLE 10 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES, EXCLUDING LOANS ACCOUNTED FOR UNDER ASC 310-30 (CONTINUED) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||||||||
|
|
|
| Variance |
|
|
|
| Variance | ||||||||
| 2017 |
| 2016 |
|
| % |
| 2017 |
| 2016 |
|
| % | ||||
| (Dollars in thousands) | ||||||||||||||||
Acquired loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs | $ | - |
| $ | (2) |
|
| -100.0% |
| $ | (132) |
| $ | (21) |
|
| 528.6% |
Recoveries |
| 1 |
|
| 16 |
|
| -93.8% |
|
| 6 |
|
| 56 |
|
| -89.3% |
Total |
| 1 |
|
| 14 |
|
| -92.9% |
|
| (126) |
|
| 35 |
|
| -460.0% |
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (711) |
|
| (889) |
|
| -20.0% |
|
| (2,367) |
|
| (2,714) |
|
| -12.8% |
Recoveries |
| 33 |
|
| 67 |
|
| -50.7% |
|
| 392 |
|
| 236 |
|
| 66.1% |
Total |
| (678) |
|
| (822) |
|
| -17.5% |
|
| (1,975) |
|
| (2,478) |
|
| -20.3% |
Auto |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs |
| (222) |
|
| (475) |
|
| -53.3% |
|
| (705) |
|
| (1,783) |
|
| -60.5% |
Recoveries |
| 202 |
|
| 461 |
|
| -56.2% |
|
| 1,251 |
|
| 1,505 |
|
| -16.9% |
Total |
| (20) |
|
| (14) |
|
| 42.9% |
|
| 546 |
|
| (278) |
|
| -296.4% |
Net credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs |
| (933) |
|
| (1,366) |
|
| -31.7% |
|
| (3,204) |
|
| (4,518) |
|
| -29.1% |
Total recoveries |
| 236 |
|
| 544 |
|
| -56.6% |
|
| 1,649 |
|
| 1,797 |
|
| -8.2% |
Total | $ | (697) |
| $ | (822) |
|
| -15.2% |
| $ | (1,555) |
| $ | (2,721) |
|
| -42.9% |
Net credit losses to average loans outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
| -1.06% |
|
| -10.65% |
|
| -90.1% |
|
| 42.64% |
|
| -8.22% |
|
| -619.0% |
Consumer |
| 4.69% |
|
| 5.52% |
|
| -15.0% |
|
| 6.91% |
|
| 5.51% |
|
| 25.4% |
Auto |
| 0.23% |
|
| 0.08% |
|
| 183.7% |
|
| -1.75% |
|
| 0.46% |
|
| -477.1% |
Total |
| 3.01% |
|
| 2.56% |
|
| 17.6% |
|
| 2.59% |
|
| 2.58% |
|
| 0.2% |
Recoveries to charge-offs |
| 25.29% |
|
| 39.82% |
|
| -36.5% |
|
| 51.47% |
|
| 39.77% |
|
| 29.4% |
Average loans accounted for under ASC 310-20: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial | $ | 378 |
|
| 526 |
|
| -28.1% |
|
| 394 |
|
| 568 |
|
| -30.6% |
Consumer |
| 57,839 |
|
| 59,617 |
|
| -3.0% |
|
| 38,088 |
|
| 59,930 |
|
| -36.4% |
Auto |
| 34,334 |
|
| 68,178 |
|
| -49.6% |
|
| 41,632 |
|
| 79,936 |
|
| -47.9% |
Total | $ | 92,551 |
| $ | 128,321 |
|
| -27.9% |
| $ | 80,114 |
| $ | 140,434 |
|
| -43.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
TABLE 11 — NON-PERFORMING ASSETS | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
| 2017 |
| 2016 |
| (%) | ||
| (Dollars in thousands) |
|
| ||||
Non-performing assets: |
|
|
|
|
|
|
|
Non-accruing loans |
|
|
|
|
|
|
|
Troubled-Debt Restructuring loans | $ | 25,257 |
| $ | 32,408 |
| -22.1% |
Other loans |
| 67,750 |
|
| 71,941 |
| -5.8% |
Accruing loans |
|
|
|
|
|
|
|
Troubled-Debt Restructuring loans |
| 4,103 |
|
| 2,706 |
| 51.6% |
Other loans |
| 642 |
|
| 1,067 |
| -39.8% |
Total non-performing loans | $ | 97,752 |
| $ | 108,122 |
| -9.6% |
Foreclosed real estate |
| 47,275 |
|
| 45,587 |
| 3.7% |
Other repossessed assets |
| 3,829 |
|
| 3,224 |
| 18.8% |
| $ | 148,856 |
| $ | 156,933 |
| -5.1% |
Non-performing assets to total assets, excluding acquired loans with deteriorated credit quality (including those by analogy) |
| 2.76% |
|
| 2.88% |
| -4.2% |
Non-performing assets to total capital |
| 15.88% |
|
| 17.05% |
| -6.9% |
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands) | ||||||||||
Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans | $ | 1,037 |
| $ | 760 |
| $ | 2,459 |
| $ | 2,385 |
|
|
|
|
|
|
|
|
|
|
|
|
134
TABLE 12 — NON-PERFORMING LOANS | |||||||
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| Variance | ||
| 2017 |
| 2016 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Non-performing loans: |
|
|
|
|
|
|
|
Originated and other loans held for investment |
|
|
|
|
|
|
|
Mortgage | $ | 59,667 |
| $ | 74,503 |
| -19.9% |
Commercial |
| 21,701 |
|
| 19,786 |
| 9.7% |
Consumer |
| 2,445 |
|
| 1,986 |
| 23.1% |
Auto and leasing |
| 11,811 |
|
| 9,052 |
| 30.5% |
|
| 95,624 |
|
| 105,327 |
| -9.2% |
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 1,141 |
|
| 1,415 |
| -19.4% |
Consumer |
| 506 |
|
| 828 |
| -38.9% |
Auto |
| 481 |
|
| 552 |
| -12.9% |
|
| 2,128 |
|
| 2,795 |
| -23.9% |
Total | $ | 97,752 |
| $ | 108,122 |
| -9.6% |
Non-performing loans composition percentages: |
|
|
|
|
|
|
|
Originated loans |
|
|
|
|
|
|
|
Mortgage |
| 61.0% |
|
| 68.9% |
|
|
Commercial |
| 22.2% |
|
| 18.3% |
|
|
Consumer |
| 2.5% |
|
| 1.8% |
|
|
Auto and leasing |
| 12.1% |
|
| 8.4% |
|
|
Acquired loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium) |
|
|
|
|
|
|
|
Commercial |
| 1.2% |
|
| 1.3% |
|
|
Consumer |
| 0.5% |
|
| 0.8% |
|
|
Auto |
| 0.5% |
|
| 0.5% |
|
|
Total |
| 100.0% |
|
| 100.0% |
|
|
Non-performing loans to: |
|
|
|
|
|
|
|
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 3.10% |
|
| 3.45% |
| -10.1% |
Total assets, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.81% |
|
| 1.99% |
| -9.0% |
Total capital |
| 10.43% |
|
| 11.75% |
| -11.2% |
Non-performing loans with partial charge-offs to: |
|
|
|
|
|
|
|
Total loans, excluding loans accounted for under ASC 310-30 (including those by analogy) |
| 1.26% |
|
| 1.17% |
| 7.69% |
Non-performing loans |
| 40.45% |
|
| 34.09% |
| 18.7% |
Other non-performing loans ratios: |
|
|
|
|
|
|
|
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken |
| 60.64% |
|
| 63.58% |
| -4.6% |
Allowance for loan and lease losses to non-performing loans on which no charge-offs have been taken |
| 126.88% |
|
| 89.25% |
| 42.2% |
|
|
|
|
|
|
|
|
135
FDIC Indemnification Asset
Oriental recorded the FDIC indemnification asset, measured separately from the covered loans, as part of the Eurobank FDIC-assisted transaction. On February 6, 2017, the Bank and the FDIC agreed to terminate the single family and commercial shared-loss agreements related to the FDIC assisted acquisition.
TABLE 13 - ACTIVITY OF FDIC INDEMNIFICATION ASSET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter Ended September 30, |
| Nine-Month Period Ended September 30, | ||||||||
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
| (In thousands) |
| (In thousands) | ||||||||
FDIC indemnification asset: |
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | $ | - |
| $ | 18,426 |
| $ | 14,411 |
| $ | 22,599 |
Shared-loss agreements reimbursements from the FDIC |
| - |
|
| (87) |
|
| - |
|
| (824) |
Increase in expected credit losses to be covered under shared-loss agreements, net |
| - |
|
| 818 |
|
| - |
|
| 3,213 |
FDIC indemnification asset benefit (expense) |
| - |
|
| (1,910) |
|
| - |
|
| (6,179) |
Net expenses incurred under shared-loss agreements |
| - |
|
| (577) |
|
| - |
|
| (2,139) |
Shared-loss termination settlement
|
| - |
|
| - |
|
| (15,814) |
|
| - |
Balance at end of period | $ | - |
| $ | 16,670 |
| $ | (1,403) |
| $ | 16,670 |
136
TABLE 14 - LIABILITIES SUMMARY AND COMPOSITION | |||||||
| September 30, |
| December 31, |
| Variance | ||
| 2017 |
| 2016 |
| % | ||
| (Dollars in thousands) |
|
| ||||
Deposits: |
|
|
|
|
|
|
|
Non-interest bearing deposits | $ | 900,063 |
| $ | 848,502 |
| 6.1% |
NOW accounts |
| 1,025,632 |
|
| 1,091,237 |
| -6.0% |
Savings and money market accounts |
| 1,360,080 |
|
| 1,196,231 |
| 13.7% |
Certificates of deposit |
| 1,538,483 |
|
| 1,526,805 |
| 0.8% |
Total deposits |
| 4,824,258 |
|
| 4,662,775 |
| 3.5% |
Accrued interest payable |
| 2,146 |
|
| 1,712 |
| 25.4% |
Total deposits and accrued interest payable |
| 4,826,404 |
|
| 4,664,487 |
| 3.5% |
Borrowings: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 283,080 |
|
| 653,756 |
| -56.7% |
Advances from FHLB |
| 100,091 |
|
| 105,454 |
| -5.1% |
Subordinated capital notes |
| 36,083 |
|
| 36,083 |
| 0.0% |
Other term notes |
| - |
|
| 61 |
| -100.0% |
Total borrowings |
| 419,254 |
|
| 795,354 |
| -47.3% |
Total deposits and borrowings |
| 5,245,658 |
|
| 5,459,841 |
| -3.9% |
|
|
|
|
|
|
|
|
Other Liabilities: |
|
|
|
|
|
|
|
Derivative liabilities |
| 1,677 |
|
| 2,437 |
| -31.2% |
Acceptances outstanding |
| 16,486 |
|
| 23,765 |
| -30.6% |
Other liabilities |
| 86,766 |
|
| 95,370 |
| -9.0% |
Total liabilities | $ | 5,350,587 |
| $ | 5,581,413 |
| -4.1% |
Deposits portfolio composition percentages: |
|
|
|
|
|
|
|
Non-interest bearing deposits |
| 18.7% |
|
| 18.2% |
|
|
NOW accounts |
| 21.3% |
|
| 23.4% |
|
|
Savings and money market accounts |
| 28.1% |
|
| 25.7% |
|
|
Certificates of deposit |
| 31.9% |
|
| 32.7% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Borrowings portfolio composition percentages: |
|
|
|
|
|
|
|
Securities sold under agreements to repurchase |
| 67.5% |
|
| 82.2% |
|
|
Advances from FHLB |
| 23.9% |
|
| 13.3% |
|
|
Other term notes |
| 0.0% |
|
| 0.0% |
|
|
Subordinated capital notes |
| 8.6% |
|
| 4.5% |
|
|
|
| 100.0% |
|
| 100.0% |
|
|
Securities sold under agreements to repurchase (excluding accrued interest) |
|
|
|
|
|
|
|
Amount outstanding at period-end | $ | 282,500 |
| $ | 652,229 |
|
|
Daily average outstanding balance | $ | 445,911 |
| $ | 663,845 |
|
|
Maximum outstanding balance at any month-end | $ | 655,790 |
| $ | 902,500 |
|
|
137
Liabilities and Funding Sources
As shown in Table 1413 above, at September 30, 20172018, Oriental’s total liabilities were $5.351$5.687 billion, 4.1% less8.4% more than the $5.581$5.244 billion reported at December 31, 20162017. Deposits and borrowings, Oriental’s funding sources, amounted to $5.246$5.577 billion at September 30, 20172018 versus $5.460$5.128 billion at December 31, 20162017, a 3.9% decrease.8.8% increase.
Borrowings consist mainly of repurchase agreements, FHLB-NY advances and subordinated capital notes. At September 30, 20172018, borrowings amounted to $419.3$488.0 million, representing a decreasean increase of 47.3%48.5% when compared with the $795.4$328.7 million reported at December 31, 20162017. The decreaseincrease in borrowings is mainly attributed to a decrease in repurchase agreements of $370.7 million, reflecting:
·The maturity of a repurchase agreement amounting to $232.0 million with a rate of 4.78% on March 2, 2017;reflects:
· An unwindingincrease of $100.0$185.3 million in new repurchase agreements used for the purchase of investment securities during the second quarter of 2017;nine-month period ended September 30, 2018; and
· The repayment at maturityA decrease of $160.4$25.9 million in advances from the FHLB-NY attributable to $64.4 million of short-term repurchase agreement duringnew advances, offset by the third quartermaturing of 2017$90.0 million of advances that were not renewed.renewed.
At September 30, 20172018, deposits represented 92%90% and borrowings represented 8%10% of interest-bearing liabilities. At September 30, 20172018, deposits, the largest category of Oriental’s interest-bearing liabilities, were $4.826$5.086 billion, an increase of 3.5%6.0% from $4.664$4.798 billion at December 31, 20162017.
Stockholders’ Equity
At September 30, 20172018, Oriental’s total stockholders’ equity was $937.6$969.9 million, a 1.9%2.6% increase when compared to $920.4$945.1 million at December 31, 20162017. This increase in stockholders’ equity reflects increases in retained earnings of $13.8$35.2 million, and legal surplus of $3.5$6.1 million, reduction in treasury stock, at cost, of $796 thousand, and an increase in additional paid-in capital of $478 thousand, partially offset by a decrease in accumulated other comprehensive loss, net of tax of $17.8 million. Book value per share was $17.56$18.27 at September 30, 20172018 compared to $17.18$17.73 at December 31, 20162017.
From December 31, 20162017 to September 30, 20172018, tangible common equity to total assets increaseddecreased from 11.12% to 10.82% from 10.19%10.73%, Leverage capital ratio increased from 13.92% to 14.07% from 12.99%13.93%, Common Equity Tier 1 capital ratio increaseddecreased from 14.59% to 14.89% from 14.05%14.38%, Tier 1 Risk-Based capital ratio increaseddecreased from 19.05% to 19.53% from 18.35%18.55%, and Total Risk-Based capital ratio increaseddecreased from 20.34% to 20.82% from 19.62%19.84%. The decrease in these ratios reflect an increase of $467.6 million in total assets, including $296.7 million in loans and $140.1 million in investments.
During the third quarter of 2018, Oriental announced the mandatory conversion of its Series C Preferred Stock into common stock, effective on October 22, 2018. Each share of Series C Preferred Stock was converted into 86.4225 shares of common stock. There were 84,000 shares of Series C Preferred Stock outstanding, all of which were converted to common stock on October 22, 2018. Upon conversion, the Series C Preferred Stock is no longer outstanding and all rights with respect to the Series C Preferred Stock have ceased and terminated, except the right to receive the number of whole shares of common stock issuable upon conversion of the Series C Preferred Stock and any required cash-in-lieu of fractional shares.
New Capital Rules to Implement Basel III Capital Requirements
OFG Bancorp and the Bank are subject to regulatory capital requirements established by the Federal Reserve Board.Board and the FDIC. The current risk-based capital standards applicable to OFG Bancorp and the Bank (“Basel III capital rules”), which have been effective since January 1, 2015, are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of September 30, 2017,2018, OFG Bancorp's and the Bank’s capital ratios
continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules.
The risk-based capital ratios presented in Table 15,14, which include common equity tier 1, Tiertier 1 capital, total capital and leverage capital as of September 30, 20172018 and December 31, 2016,2017, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.
138129
The following are the consolidated capital ratios of Oriental under the New Capital RulesBasel III capital rules at September 30, 20172018 and December 31, 2016:2017:
TABLE 15 — CAPITAL, DIVIDENDS AND STOCK DATA | ||||||||||||||
TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA | TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA | |||||||||||||
| September 30, |
| December 31, |
| Variance | September 30, |
| December 31, |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands, except per share data) |
|
| (Dollars in thousands, except per share data) |
|
| ||||||||
Capital data: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Stockholders’ equity | $ | 937,630 |
| $ | 920,411 |
| 1.9% | $ | 969,886 |
| $ | 945,107 |
| 2.6% |
Regulatory Capital Ratios data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio |
| 14.89% |
|
| 14.05% |
| 6.0% |
| 14.38% |
|
| 14.59% |
| -1.4% |
Minimum common equity tier 1 capital ratio required |
| 4.50% |
|
| 4.50% |
| 0.0% |
| 4.50% |
|
| 4.50% |
| 0.0% |
Actual common equity tier 1 capital | $ | 633,401 |
|
| 627,733 |
| 0.9% | $ | 690,937 |
|
| 644,804 |
| 7.2% |
Minimum common equity tier 1 capital required | $ | 191,367 |
|
| 201,040 |
| -4.8% | $ | 216,286 |
|
| 198,930 |
| 8.7% |
Minimum capital conservation buffer required | $ | 53,158 |
|
| 27,922 |
| 90.4% | $ | 90,119 |
|
| 55,258 |
| 63.1% |
Excess over regulatory requirement | $ | 388,876 |
|
| 398,770 |
| -2.5% | $ | 384,532 |
|
| 390,615 |
| -1.6% |
Risk-weighted assets | $ | 4,252,605 |
|
| 4,467,556 |
| -4.8% | $ | 4,806,348 |
|
| 4,420,667 |
| 8.7% |
Tier 1 risk-based capital ratio |
| 19.53% |
|
| 18.35% |
| 6.4% |
| 18.55% |
|
| 19.05% |
| -2.6% |
Minimum tier 1 risk-based capital ratio required |
| 6.00% |
|
| 6.00% |
| 0.0% |
| 6.00% |
|
| 6.00% |
| 0.0% |
Actual tier 1 risk-based capital | $ | 830,640 |
| $ | 819,662 |
| 1.3% | $ | 891,807 |
| $ | 842,133 |
| 5.9% |
Minimum tier 1 risk-based capital required | $ | 255,156 |
| $ | 268,053 |
| -4.8% | $ | 288,381 |
| $ | 265,240 |
| 8.7% |
Excess over regulatory requirement | $ | 575,484 |
| $ | 551,608 |
| 4.3% | $ | 603,426 |
| $ | 576,893 |
| 4.6% |
Risk-weighted assets | $ | 4,252,605 |
| $ | 4,467,556 |
| -4.8% | $ | 4,806,348 |
| $ | 4,420,667 |
| 8.7% |
Total risk-based capital ratio |
| 20.82% |
|
| 19.62% |
| 6.1% |
| 19.84% |
|
| 20.34% |
| -2.5% |
Minimum total risk-based capital ratio required |
| 8.00% |
|
| 8.00% |
| 0.0% |
| 8.00% |
|
| 8.00% |
| 0.0% |
Actual total risk-based capital | $ | 885,523 |
| $ | 876,657 |
| 1.0% | $ | 953,543 |
| $ | 899,258 |
| 6.0% |
Minimum total risk-based capital required | $ | 340,208 |
| $ | 357,404 |
| -4.8% | $ | 384,508 |
| $ | 353,653 |
| 8.7% |
Excess over regulatory requirement | $ | 545,315 |
| $ | 519,252 |
| 5.0% | $ | 569,035 |
| $ | 545,604 |
| 4.3% |
Risk-weighted assets | $ | 4,252,605 |
| $ | 4,467,556 |
| -4.8% | $ | 4,806,348 |
| $ | 4,420,667 |
| 8.7% |
Leverage capital ratio |
| 14.07% |
|
| 12.99% |
| 8.3% |
| 13.93% |
|
| 13.92% |
| 0.1% |
Minimum leverage capital ratio required |
| 4.00% |
|
| 4.00% |
| 0.0% |
| 4.00% |
|
| 4.00% |
| 0.0% |
Actual tier 1 capital | $ | 830,640 |
| $ | 819,662 |
| 1.3% | $ | 891,807 |
| $ | 842,133 |
| 5.9% |
Minimum tier 1 capital required | $ | 236,105 |
| $ | 252,344 |
| -6.4% | $ | 255,993 |
| $ | 242,057 |
| 5.8% |
Excess over regulatory requirement | $ | 594,535 |
| $ | 567,318 |
| 4.8% | $ | 635,814 |
| $ | 600,076 |
| 6.0% |
Tangible common equity to total assets |
| 10.82% |
|
| 10.19% |
| 6.2% |
| 10.73% |
|
| 11.12% |
| -3.5% |
Tangible common equity to risk-weighted assets |
| 16.01% |
|
| 14.82% |
| 8.0% |
| 14.86% |
|
| 15.57% |
| -4.6% |
Total equity to total assets |
| 14.91% |
|
| 14.16% |
| 5.3% |
| 14.57% |
|
| 15.27% |
| -4.6% |
Total equity to risk-weighted assets |
| 22.05% |
|
| 20.60% |
| 7.0% |
| 20.18% |
|
| 21.38% |
| -5.6% |
Stock data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding common shares |
| 43,947,442 |
|
| 43,914,844 |
| 0.1% |
| 44,005,741 |
|
| 43,947,442 |
| 0.1% |
Book value per common share | $ | 17.56 |
| $ | 17.18 |
| 2.2% | $ | 18.27 |
| $ | 17.73 |
| 3.0% |
Tangible book value per common share | $ | 15.49 |
| $ | 15.08 |
| 2.7% | $ | 16.23 |
| $ | 15.67 |
| 3.6% |
Market price at end of period | $ | 9.15 |
| $ | 13.10 |
| -30.2% | $ | 16.15 |
| $ | 9.40 |
| 71.8% |
Market capitalization at end of period | $ | 402,119 |
| $ | 575,284 |
| -30.1% | $ | 710,693 |
| $ | 413,106 |
| 72.0% |
139130
The following table presents a reconciliation of Oriental’s total stockholders’ equity to tangible common equity and total assets to tangible assets at September 30, 2017,2018, and December 31, 2016:2017:
| September 30, |
| December 31, | September 30, |
| December 31, | ||||
| 2017 |
| 2016 | 2018 |
| 2017 | ||||
| (In thousands, except share or per share information) | (In thousands, except share or per share information) | ||||||||
Total stockholders' equity | $ | 937,630 |
| $ | 920,411 | $ | 969,886 |
| $ | 945,107 |
Preferred stock |
| (176,000) |
| (176,000) |
| (176,000) |
| (176,000) | ||
Preferred stock issuance costs |
| 10,130 |
| 10,130 |
| 10,130 |
| 10,130 | ||
Goodwill |
| (86,069) |
| (86,069) |
| (86,069) |
| (86,069) | ||
Core deposit intangible |
| (3,569) |
| (4,260) |
| (2,695) |
| (3,339) | ||
Customer relationship intangible |
| (1,486) |
|
| (1,900) |
| (1,003) |
|
| (1,348) |
Total tangible common equity | $ | 680,636 |
| $ | 662,312 | |||||
Total tangible common equity (non-GAAP) | $ | 714,249 |
| $ | 688,481 | |||||
Total assets |
| 6,288,217 |
|
| 6,501,824 |
| 6,656,674 |
|
| 6,189,053 |
Goodwill |
| (86,069) |
| (86,069) |
| (86,069) |
| (86,069) | ||
Core deposit intangible |
| (3,569) |
| (4,260) |
| (2,695) |
| (3,339) | ||
Customer relationship intangible |
| (1,486) |
|
| (1,900) |
| (1,003) |
|
| (1,348) |
Total tangible assets | $ | 6,197,093 |
| $ | 6,409,595 | $ | 6,566,907 |
| $ | 6,098,297 |
Tangible common equity to tangible assets |
| 10.98% |
|
| 10.33% |
| 10.88% |
|
| 11.29% |
Common shares outstanding at end of period |
| 43,947,442 |
|
| 43,914,844 |
| 44,005,741 |
|
| 43,947,442 |
Tangible book value per common share | $ | 15.49 |
| $ | 15.08 | $ | 16.23 |
| $ | 15.67 |
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.
140131
The following table presents Oriental’s capital adequacy information under the New Capital Rules:Basel III capital rules:
| September 30, |
| December 31, |
| Variance | September 30, |
| December 31, |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) |
|
| (Dollars in thousands) |
|
| ||||||||
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Common equity tier 1 capital | $ | 633,401 |
| $ | 627,733 |
| 0.9% | $ | 690,937 |
| $ | 644,804 |
| 7.2% |
Additional tier 1 capital |
| 197,239 |
|
| 191,929 |
| 2.8% |
| 200,870 |
|
| 197,329 |
| 1.8% |
Tier 1 capital |
| 830,640 |
|
| 819,662 |
| 1.3% |
| 891,807 |
|
| 842,133 |
| 5.9% |
Additional Tier 2 capital |
| 54,883 |
|
| 56,995 |
| -3.7% |
| 61,736 |
|
| 57,125 |
| 8.1% |
Total risk-based capital | $ | 885,523 |
| $ | 876,657 |
| 1.0% | $ | 953,543 |
| $ | 899,258 |
| 6.0% |
Risk-weighted assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items | $ | 4,093,252 |
| $ | 4,307,817 |
| -5.0% | $ | 4,605,685 |
| $ | 4,249,042 |
| 8.4% |
Off-balance sheet items |
| 159,353 |
|
| 159,739 |
| -0.2% |
| 200,663 |
|
| 171,625 |
| 16.9% |
Total risk-weighted assets | $ | 4,252,605 |
| $ | 4,467,556 |
| -4.8% | $ | 4,806,348 |
| $ | 4,420,667 |
| 8.7% |
Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital (minimum required - 4.5%) |
| 14.89% |
| 14.05% |
| 6.0% |
| 14.38% |
| 14.59% |
| -1.4% | ||
Tier 1 capital (minimum required - 6%) |
| 19.53% |
| 18.35% |
| 6.4% |
| 18.55% |
| 19.05% |
| -2.6% | ||
Total capital (minimum required - 8%) |
| 20.82% |
| 19.62% |
| 6.1% |
| 19.84% |
| 20.34% |
| -2.5% | ||
Leverage ratio |
| 14.07% |
| 12.99% |
| 8.3% | ||||||||
Leverage ratio (minimum required - 4%) |
| 13.93% |
| 13.92% |
| 0.1% | ||||||||
Equity to assets |
| 14.91% |
| 14.16% |
| 5.3% |
| 14.57% |
| 15.27% |
| -4.6% | ||
Tangible common equity to assets |
| 10.82% |
| 10.19% |
| 6.2% |
| 10.73% |
| 11.12% |
| -3.5% |
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The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action. The table below shows the Bank’s regulatory capital ratios at September 30, 20172018 and December 31, 2016:2017:
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| September 30, |
| December 31, |
| Variance | September 30, |
| December 31, |
| Variance | ||||
| 2017 |
| 2016 |
| % | 2018 |
| 2017 |
| % | ||||
| (Dollars in thousands) |
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| (Dollars in thousands) |
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| ||||||||
Oriental Bank Regulatory Capital Ratios: |
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Common Equity Tier 1 Capital to Risk-Weighted Assets |
| 19.11% |
|
| 17.96% |
| 6.4% |
| 18.00% |
|
| 18.63% |
| -3.4% |
Actual common equity tier 1 capital | $ | 812,831 |
| $ | 800,544 |
| 1.5% | $ | 863,978 |
| $ | 822,776 |
| 5.0% |
Minimum capital requirement (4.5%) | $ | 191,421 |
| $ | 200,585 |
| -4.6% | $ | 215,984 |
| $ | 198,712 |
| 8.7% |
Minimum capital conservation buffer requirement (1.25% at June 30, 2017 - 0.625% at December 31, 2016) | $ | 53,173 |
| $ | 27,859 |
| 90.9% | |||||||
Minimum capital conservation buffer requirement (1.875% at September 30, 2018 - 1.25% at December 31, 2017) | $ | 89,993 |
| $ | 55,198 |
| 63.0% | |||||||
Minimum to be well capitalized (6.5%) | $ | 276,497 |
| $ | 289,734 |
| -4.6% | $ | 311,977 |
| $ | 287,028 |
| 8.7% |
Tier 1 Capital to Risk-Weighted Assets |
| 19.11% |
|
| 17.96% |
| 6.4% |
| 18.00% |
|
| 18.63% |
| -3.4% |
Actual tier 1 risk-based capital | $ | 812,831 |
| $ | 800,544 |
| 1.5% | $ | 863,978 |
| $ | 822,776 |
| 5.0% |
Minimum capital requirement (6%) | $ | 255,228 |
| $ | 267,447 |
| -4.6% | $ | 287,979 |
| $ | 264,949 |
| 8.7% |
Minimum to be well capitalized (8%) | $ | 340,304 |
| $ | 356,596 |
| -4.6% | $ | 383,971 |
| $ | 353,265 |
| 8.7% |
Total Capital to Risk-Weighted Assets |
| 20.39% |
|
| 19.23% |
| 6.1% |
| 19.28% |
|
| 19.92% |
| -3.2% |
Actual total risk-based capital | $ | 867,535 |
| $ | 857,259 |
| 1.2% | $ | 925,447 |
| $ | 879,648 |
| 5.2% |
Minimum capital requirement (8%) | $ | 340,304 |
| $ | 356,596 |
| -4.6% | $ | 383,971 |
| $ | 353,265 |
| 8.7% |
Minimum to be well capitalized (10%) | $ | 425,380 |
| $ | 445,745 |
| -4.6% | $ | 479,964 |
| $ | 441,581 |
| 8.7% |
Total Tier 1 Capital to Average Total Assets |
| 0.14% |
|
| 12.75% |
| -98.9% |
| 13.56% |
|
| 13.63% |
| -0.5% |
Actual tier 1 capital | $ | 812,831 |
| $ | 800,544 |
| 1.5% | $ | 863,978 |
| $ | 822,776 |
| 5.0% |
Minimum capital requirement (4%) | $ | 235,364 |
| $ | 251,200 |
| -6.3% | $ | 254,847 |
| $ | 241,417 |
| 5.6% |
Minimum to be well capitalized (5%) | $ | 294,204 |
| $ | 314,000 |
| -6.3% | $ | 318,559 |
| $ | 301,771 |
| 5.6% |
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Oriental’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At September 30, 20172018 and December 31, 2016,2017, Oriental’s market capitalization for its outstanding common stock was $402.1$710.7 million ($9.1516.15 per share) and $575.3$413.1 million ($13.109.40 per share), respectively.
The following table provides the high and low prices and dividends per share of Oriental’s common stock for each quarter of the last twothree calendar years:
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| Cash |
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| Cash | ||||
| Price |
| Dividend | Price |
| Dividend | ||||||||||
| High |
| Low |
| Per share | High |
| Low |
| Per share | ||||||
2018 |
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September 30, 2018 | $ | 17.60 |
| $ | 14.45 |
| $ | 0.06 | ||||||||
June 30, 2018 | $ | 14.75 |
| $ | 10.60 |
| $ | 0.06 | ||||||||
March 31, 2018 | $ | 12.05 |
| $ | 8.60 |
| $ | 0.06 | ||||||||
2017 |
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December 31, 2017 | $ | 10.25 |
| $ | 7.90 |
| $ | 0.06 | ||||||||
September 30, 2017 | $ | 10.40 |
| $ | 8.40 |
| $ | 0.06 | $ | 10.40 |
| $ | 8.40 |
| $ | 0.06 |
June 30, 2017 | $ | 12.03 |
| $ | 9.19 |
| $ | 0.06 | $ | 12.03 |
| $ | 9.19 |
| $ | 0.06 |
March 31, 2017 | $ | 13.80 |
| $ | 10.90 |
| $ | 0.06 | $ | 13.80 |
| $ | 10.90 |
| $ | 0.06 |
2016 |
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December 31, 2016 | $ | 14.30 |
| $ | 9.56 |
| $ | 0.06 | $ | 14.30 |
| $ | 9.56 |
| $ | 0.06 |
September 30, 2016 | $ | 11.09 |
| $ | 8.07 |
| $ | 0.06 | $ | 11.09 |
| $ | 8.07 |
| $ | 0.06 |
June 30, 2016 | $ | 9.14 |
| $ | 6.32 |
| $ | 0.06 | $ | 9.14 |
| $ | 6.32 |
| $ | 0.06 |
March 31, 2016 | $ | 7.32 |
| $ | 4.77 |
| $ | 0.06 | $ | 7.32 |
| $ | 4.77 |
| $ | 0.06 |
2015 |
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December 31, 2015 | $ | 10.52 |
| $ | 6.39 |
| $ | 0.06 | ||||||||
September 30, 2015 | $ | 10.20 |
| $ | 6.63 |
| $ | 0.10 | ||||||||
June 30, 2015 | $ | 17.04 |
| $ | 10.67 |
| $ | 0.10 | ||||||||
March 31, 2015 | $ | 17.70 |
| $ | 14.88 |
| $ | 0.10 | ||||||||
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Under Oriental’s current stock repurchase program, it is authorized to purchase in the open market up to $7.7 million of its outstanding shares of common stock. The shares of common stock repurchased are to be held by Oriental as treasury shares. There were no repurchases during the quarter ended September 30, 20172018.
At September 30, 2017,2018, the number of shares that may yet be purchased under such program is estimated at 844,902478,691 and was calculated by dividing the remaining balance of $7.7 million by $9.15$16.15 (closing price of Oriental's common stock at September 30, 2017)2018).
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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 Risk and Compliance Committee and the executive Risk Management and Compliance Committee.Team. Oriental has continued to refine and enhance its risk management program by strengthening policies, processes and procedures necessary to maintain effective risk management.
All aspects of Oriental’s business activities are susceptible to risk. Consequently, risk identification and monitoring are essential to risk management. As more fully discussed below, Oriental’s primary risk exposures include, market, interest rate, credit, liquidity, operational and concentration risks.
Market Risk
Market risk is the risk to earnings or capital arising from adverse movements in market rates or prices, such as interest rates or prices. Oriental evaluates market risk together with interest rate risk. Oriental’s financial results and capital levels are constantly exposed to market risk. The Board and management are primarily responsible for ensuring that the market risk assumed by Oriental complies with the guidelines established by policies approved by the Board. The Board has delegated the management of this risk to the Asset/Liability Management Committee (“ALCO”) which is composed of certain executive officers from the business, treasury and finance areas. One of ALCO’s primary goals is to ensure that the market risk assumed by Oriental is within the parameters established in such policies.
Interest Rate Risk
Interest rate risk is the exposure of Oriental’s earnings or capital to adverse movements in interest rates. It is a predominant market risk in terms of its potential impact on earnings. Oriental manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income. ALCO oversees interest rate risk, liquidity management and other related matters.
In executing its responsibilities, ALCO examines current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market, liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment portfolio, alternative funding sources and their costs, hedging and the possible purchase of derivatives such as swaps, and any tax or regulatory issues which may be pertinent to these areas.
On a quarterly basis, Oriental performs a net interest income simulation analysis on a consolidated basis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a five-year time horizon, assuming certain gradual upward and downward interest rate movements, achieved during a twelve-month period. Instantaneous interest rate movements are also modeled. Simulations are carried out in two ways:
(i) using a static balance sheet as Oriental had on the simulation date, and
(ii) using a dynamic balance sheet based on recent growth patterns and business strategies.
The balance sheet is divided into groups of assets and liabilities detailed by maturity or re-pricing and their corresponding interest yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and costs, the possible exercise of options, changes in prepayment rates, deposits decay and other factors which may be important in projecting the future growth of net interest income.
Oriental uses a software application to project future movements in Oriental’s balance sheet and income statement. The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations.
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These simulations are complex, and use many assumptions that are intended to reflect the general behavior of Oriental over the period in question. There can be no assurance that actual events will match these assumptions in all cases. For this reason, the results of these simulations are only approximations of the true sensitivity of net interest income to changes in market interest rates. The following table presents the results of the simulations at September 30, 20172018 for the most likely scenario, assuming a one-year time horizon:
| Net Interest Income Risk (one year projection) | Net Interest Income Risk (one-year projection) | ||||||||||||||||
| Static Balance Sheet |
| Growing Simulation | Static Balance Sheet |
| Growing Simulation | ||||||||||||
| Amount |
| Percent |
| Amount |
| Percent | Amount |
| Percent |
| Amount |
| Percent | ||||
| Change |
| Change |
| Change |
| Change | Change |
| Change |
| Change |
| Change | ||||
Change in interest rate | (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||
+ 200 Basis points | $ | 12,085 |
| 4.38% |
| $ | 8,772 |
| 3.10% | $ | 12,617 |
| 4.01% |
| $ | 12,853 |
| 4.19% |
+ 100 Basis points | $ | 6,077 |
| 2.20% |
| $ | 4,420 |
| 1.56% | $ | 6,281 |
| 2.00% |
| $ | 6,407 |
| 2.09% |
- 50 Basis points | $ | (2,957) |
| -1.07% |
| $ | (2,030) |
| -0.72% | |||||||||
- 100 Basis points | $ | (5,962) |
| -1.90% |
| $ | (6,096) |
| -1.99% | |||||||||
- 200 Basis points | $ | (11,944) |
| -3.80% |
| $ | (12,212) |
| -3.98% |
The impact of -100 and -200 basis point reductions in interest rates is not presented in view of current level of the federal funds rate and other short-term interest rates.
Future net interest income could be affected by Oriental’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and any structured repurchase agreements and advances from the FHLB-NY in which it may enter into from time to time. As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of Oriental’s assets and liabilities, Oriental has executed certain transactions which include extending the maturity and the re-pricing frequency of the liabilities to longer terms reducing the amounts of its structured repurchase agreements and entering into hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings that only consist of advances from the FHLB-NY as of September 30, 2017.2018.
Oriental maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Oriental’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities will appreciate or depreciate in market value. Also, for some fixed-rate assets or liabilities, the effect of this variability in earnings is expected to be substantially offset by Oriental’s gains and losses on the derivative instruments that are linked to the forecasted cash flows of these hedged assets and liabilities. Oriental considers its strategic use of derivatives to be a prudent method of managing interest-rate sensitivity as it reduces the exposure of earnings and the market value of its equity to undue risk posed by changes in interest rates. The effect of this unrealized appreciation or depreciation is expected to be substantially offset by Oriental’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. Another result of interest rate fluctuations 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 9 to the accompanying consolidated financial statements for further information concerning Oriental’s derivative activities.
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Following is a summary of certain strategies, including derivative activities, currently used by Oriental to manage interest rate risk:
Interest rate swaps — Oriental entered into hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in the one-month LIBOR rate. Once the forecasted wholesale borrowings 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 liabilityasset of $868$643 thousand (notional amount of $35.5$34.0 million) was recognized at September 30, 20172018 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 ratevariable-rate loans to fixed-rate loans, and the mirror-images of these interest rate swaps in which Oriental enters into to minimize its interest rate risk exposure that results from offering the derivatives to clients. These interest rate swaps are marked to market through earnings. At September 30, 2017,2018, interest rate swaps offered to clients not designated as hedging instruments represented a derivative asset of $757$227 thousand (notional amounts of $12.5 million), and the mirror-image interest rate swaps in which Oriental entered into represented a derivative liability of $757$227 thousand (notional amounts of $12.5 million).
Wholesale borrowings — Oriental uses interest rate swaps to hedge the variability of interest cash flows of certain advances from the FHLB-NY that are tied to a variable rate index. The interest rate swaps effectively fix Oriental’s interest payments on these borrowings. As of September 30, 2017,2018, Oriental had $35.5$34.0 million in interest rate swaps at an average rate of 2.4% designated as cash flow hedges for $35.5$34.0 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 tentwelve years, due to a shrinking population, a protracted economic recession, a housing sector that remains under pressure, the Puerto Rico government’s fiscal and liquidity crisis, and the payment defaults on various Puerto Rico government bonds, with severe austerity measures expected for the Puerto Rico government to be able to restructure its debts under the supervision of a federally createdthe federally-created Fiscal Oversight Board.and Management Board for Puerto Rico. In addition, as was demonstrated with hurricanes Irma and Maria during the month of September 2017, Puerto Rico is an island in the Caribbean susceptible to natural disasters, such as hurricanes and earthquakes. Such disastersearthquakes, which can have a disproportionate impact on Puerto Rico because of the logistical difficulties of bringing relief to an island.island far from the United States mainland. Moreover, the Puerto Rico government's fiscal challenges and Puerto Rico's unique relationship with the United States additionallyalso complicate any relief efforts after a natural disaster. These events increase credit risk as debtors may no longer be capable of operating their businessbusinesses and the collateral securing Oriental's loans may suffer significant damage.damages.
Oriental manages its credit risk through a comprehensive credit policy which establishes sound underwriting standards by monitoring and evaluating loan portfolio quality, and by the constant assessment of reserves and loan concentrations. Oriental also employs proactive collection and loss mitigation practices.
Oriental may also encounter risk of default in relation to its securities portfolio. The securities held by Oriental are principallyall agency mortgage-backed securities. Thus, a substantial portion of these instruments are guaranteed by mortgages, a U.S. government-sponsored entity, or the full faith and credit of the U.S. government.
Oriental’s executive Credit Risk Committee,Team, composed of its Chief Executive Officer, Chief Operating Officer, Chief Credit Officer, Chief Risk and Compliance Officer, and other senior executives, has primary responsibility for setting strategies to achieve Oriental’s credit risk goals and objectives. Those goals and objectives are set forth in Oriental’s Credit Policy as approved by the Board.
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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.
Oriental’s business requires continuous access to various funding sources. While Oriental is able to fund its operations through deposits as well as through advances from the FHLB-NY and other alternative sources, Oriental’s business is dependent upon other
146
external wholesale funding sources. Oriental has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements and brokered deposits. As of September 30, 2017,2018, Oriental had $282.5$377.8 million in repurchase agreements, excluding accrued interest, and $535.6$530.9 million in brokered deposits.
Brokered deposits are typically offered through an intermediary to small retail investors. Oriental’s ability to continue to attract brokered deposits is subject to variability based upon a number of factors, including volume and volatility in the global securities markets, Oriental’s credit rating, and the relative interest rates that it is prepared to pay for these liabilities. Brokered deposits are generally considered a less stable source of funding than core deposits obtained through retail bank branches. Investors in brokered deposits are generally more sensitive to interest rates and will generally move funds from one depository institution to another based on small differences in interest rates offered on deposits.
Although Oriental expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms. In a period of financial disruption or if negative developments occur with respect to Oriental, the availability and cost of Oriental’s funding sources could be adversely affected. In that event, Oriental’s cost of funds may increase, thereby reducing its net interest income, or Oriental may need to dispose of a portion of its investment portfolio, which depending upon market conditions, could result in realizing a loss or experiencing other adverse accounting consequences upon any such dispositions. Oriental’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global securities markets or other reductions in liquidity driven by Oriental or market-related events. In the event that such sources of funds are reduced or eliminated and Oriental is not able to replace these on a cost-effective basis, Oriental may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.
As of September 30, 2017,2018, Oriental had approximately $720.7$543.8 million in unrestricted cash and cash equivalents, $810.3$745.3 million in investment securities that are not pledged as collateral, $849.5$830.7 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 Executiveexecutive Risk and Compliance Committee.Team. Oriental also has a Business Continuity Plan to address situations where its capacity to perform critical functions is affected. Under such circumstances, a Crisis Management Team is activated to restore such critical functions within established timeframes.
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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.
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Concentration Risk
Substantially all of Oriental’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico. As a consequence, Oriental’s profitability and financial condition may be adversely affected by an extended economic slowdown, adverse political, fiscal or economic developments in Puerto Rico or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of Oriental’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of Oriental’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon such evaluation, the CEO and the CFO have concluded that, as of the end of such period, Oriental’s disclosure controls and procedures provided reasonable assurance of effectiveness in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Oriental in the reports that it files or submits under the Exchange Act. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within Oriental to disclose material information otherwise required to be set forth in Oriental’s periodic reports.
Internal Control over Financial Reporting
During the third quarter of 2017,There have not been any changes in Oriental’s internal control measures were modified to accommodate the operational changes that were required in the aftermath of hurricanes Irma and Maria. Alternate and mitigating controls were implemented to provide continued assurance of proper internal control over activities affecting financial reporting. These modifications of internal controls over financial reporting have not(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2018, that has materially affected, and are notor is reasonably likely to materially affect, the Company’s internal control over financial reporting.
During the third quarter of 2017, we completed the migration of our accounting and financial reporting systems to a new platform. This implementation impacts various internal processes and controls for business activities within accounting, as well as financial reporting. Oriental believes that this new system and the related changes to internal controls will ultimately strengthen its internal controls over financial reporting. However, there are inherent risks in implementing any new accounting and financial reporting system, and Oriental will continue to evaluate and test control changes to provide certification on the effectiveness, in all material respects, of its internal controls over financial reporting for the year ending December 31, 2017.
Except for the implementation described above, there were no changes in our internal control over financial reporting that occurred during the third quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, ourOriental’s internal control over financial reporting.
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PART - II OTHER INFORMATION
Oriental and its subsidiaries are defendants in a number of legal proceedings incidental to their business. Oriental is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on Oriental’s financial condition or results of operations.
Except as set forth below, thereThere have been no material changes to the risk factors previously disclosed in Oriental’s annual report on Form 10-K for the year ended December 31, 2016.2017. In addition to other information set forth in this report, you should carefully consider the risk factors included in Oriental’s annual report on Form 10-K, as updated by this report or other filings Oriental makes with the SEC under the Exchange Act. Additional risks and uncertainties not presently known to Oriental at this time or that Oriental currently deems immaterial may also adversely affect Oriental’s business, financial condition or results of operations.
Hurricanes Irma and Maria caused unprecedented catastrophic damages throughout Puerto Rico, our principal market area.
Puerto Rico is our principal market area, which is susceptible to hurricanes and tropical storms. Hurricane Maria, a category 4 storm, made landfall in Puerto Rico on September 20, 2017, less than two weeks after hurricane Irma, a category 5 storm, passed north of Puerto Rico leaving over a million local residents without electric power. Over a month after the hurricanes, most of Puerto Rico remains without electricity, many businesses are unable to operate, and government authorities are still struggling to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria and some are still subject to significant delays. Hurricane Maria caused catastrophic property damages throughout Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and public facilities. In addition, it caused flooding in some areas, displaced many local residents, and severely disrupted business operations and economic activities. Although the hurricanes did not permanently affect our facilities, they affected our loan originations and impacted our deposit and customer base. Further, many properties and structures in Puerto Rico suffered extensive flood or wind damages, which may adversely affect the value of collateral securing our loans and, potentially, the ability of borrowers to repay their obligations to us. Approximately 99.7% of our $4.1 billion loan portfolio as of September 30, 2017, consists of Puerto Rico-based borrowers, and 56.1% of such portfolio is secured by Puerto Rico real estate assets. Therefore, it is likely that loan delinquencies and restructurings will increase, particularly in the near term, as borrowers undertake recovery and clean-up efforts, including the pursuit of insurance claims. Our borrowers may also experience disruptions in their business or employment status. Such increases in delinquencies and restructurings would negatively affect our cash flows and, if not timely cured, would increase our non-performing assets and reduce our net interest income. We may also experience increases in total loan losses as loan delinquencies and restructurings increase if insurance proceeds and collateral values are insufficient to cover balances of loans in default.
We evaluated the impact of hurricanes Irma and Maria on our loan portfolios relative to the adequacy of the allowance for loan losses at September 30, 2017, and recorded an additional provision for loan losses of $27 million (pre-tax). However, the amount of loan losses relating to these hurricanes remains uncertain and the additional loan loss provision may not be sufficient to cover our actual loan losses. Alternatively, loan losses may not materialize due to adequate insurance coverage or the financial resources of borrowers, which may result in a reduction to the loan loss provision in a future period.
Collection and foreclosure court proceedings on our loans in default were also affected or delayed as a result of the impact that hurricane Maria had on the infrastructure of the Puerto Rico judiciary branch. The Office of the Administrator of the Courts (known by its Spanish acronym as “OAT”) announced that all deadlines between September 19 and November 30, 2017, would be reset for December 1, 2017. OAT also stated that except for specific instances in which a court reschedules a hearing or conference, all settings from November 1, 2017 onward will remain as scheduled. The hearings and conferences set to be held in courthouses that were significantly damaged by the hurricane, such as in the municipalities of Aguadilla, Bayamon and Utuado, have had to be relocated to nearby courthouses.
The severity and duration of the effects of these hurricanes will depend on a number of factors that are beyond our control, including the amount and timing of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, the pace and magnitude of Puerto Rico’s economic recovery, and the extent to which property damages and business
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interruption losses caused by these natural disasters is covered by insurance. Also, changes to the Commonwealth’s fiscal plan, as mandated by the Financial Oversight and Management Board under PROMESA, increases in local unemployment, population decline due to migration, and further declines in Puerto Rico real estate values as a result of these hurricanes may be generally expected. Therefore, a significant uncertainty remains regarding the impact of these hurricanes on our business, financial condition, and results of operations.
Puerto Rico is susceptible to hurricanes and major storms, which could further deteriorate Puerto Rico’s economy and infrastructure.
Our branch network and most of our business is concentrated in Puerto Rico, which is susceptible to hurricanes and major storms that affect the local economy and the demand for our loans and financial services, as well as the ability of our customers to repay their loans. Any such natural disasters may further adversely affect Puerto Rico’s critical infrastructure, which is generally weak. This makes us vulnerable to downturns in Puerto Rico’s economy as a result of natural disasters, such as hurricanes Irma and Maria. Any subsequent hurricanes, major storms or similar natural disasters could further deteriorate Puerto Rico’s economy and infrastructure and negatively affect or disrupt our operations and customer base.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
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ITEM 6. EXHIBITS
Exhibit No. Description of Document:
10.1 2007 Omnibus Performance Incentive Plan Performance Shares Award and Agreement.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from OFG Bancorp’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2018, 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.
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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)
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By: | /s/ José Rafael Fernández
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| Date: November |
| José Rafael Fernández |
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| President and Chief Executive Officer |
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By: | /s/ Maritza Arizmendi
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| Date: November |
| Maritza Arizmendi |
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| Executive Vice President, Chief Accounting Officer |
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