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Section 1: 10-Q (FORM 10Q)

UNITED STATES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

     EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2018

 

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer               Accelerated Filer ý               Non-Accelerated Filer                 Smaller Reporting Company                                                                                                                                                                                                        

Emerging Growth Company    

 

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

 

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

 

 

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

 

 51,293,924 common shares ($1.00 par value per share) outstanding as of October 31, 2018

 


 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

 

 

Unaudited Consolidated Statements of Financial Condition

1

 

Unaudited Consolidated Statements of Operations

3

 

Unaudited Consolidated Statements of Comprehensive Income

5

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

6

 

Unaudited Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

 

 

 

Note 1 – Organization, Consolidation and Basis of Presentation

10

 

 

Note 2 – Significant Events

 12 

 

 

Note 3 – Restricted Cash

13

 

 

Note 4 – Investment Securities

14

 

 

Note 5 – Loans  

20

 

 

Note 6 – Allowance for Loan and Lease Losses

48

 

 

Note 7 – FDIC Shared-loss Agreements

58

 

 

Note 8 – Foreclosed Real Estate

57

 

 

Note 9 – Derivatives

60

 

 

Note 10 – Accrued Interest Receivable and Other Assets

61

 

 

Note 11 – Deposits and Related Interest

62

 

 

Note 12 – Borrowings and Related Interest

64

 

 

Note 13 – Offsetting of  Financial Assets and Liabilities

66

 

 

Note 14 – Income Taxes

68

 

 

Note 15 – Regulatory Capital Requirements

69

 

 

Note 16 – Stockholders’ Equity

70

 

 

Note 17 – Accumulated Other Comprehensive Income

71

 

 

Note 18 – Earnings per Common Share

74

 

 

Note 19 – Guarantees

75

 

 

Note 20 – Commitments and Contingencies

76

 

 

Note 21 – Fair Value of Financial Instruments

85

 

 

Note 22 – Banking and Financial Service Revenues

79

 

 

Note 23 – Business Segments

86

 

 

Note 24 – Subsequent Events

86

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations  

89

 

 

Critical Accounting Policies and  Estimates  

89

 

 

Overview of Financial Performance:

89

 

 

Selected Financial Data

91

 

 

Financial Highlights of the Second Quarter of 2018

93

 

 

Analysis of Results of Operations  

94

 

 

Analysis of Financial Condition  

107

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

135

Item 4.

Controls and Procedures

139

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

140

Item 1A.

Risk Factors

140

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

140

Item 3.

Default upon Senior Securities

140

Item 4.

Mine Safety Disclosures

140

Item 5.

Other Information

140

Item 6.

Exhibits

141

Signatures

142

 


 

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 for Puerto Rico;

·     determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations;

·     the impact of property, credit and other losses in Puerto Rico as a result of hurricanes, earthquakes and other natural disasters;

·     the amount of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, which suffered catastrophic damages caused by hurricane Maria;

·     the pace and magnitude of Puerto Rico’s economic recovery;

·     the fiscal and monetary policies of the federal government and its agencies;

·     changes in federal bank regulatory and supervisory policies, including required levels of capital;

·     the relative strength or weakness of the commercial and consumer credit sectors and the real estate market in Puerto Rico;

·     the performance of the stock and bond markets;

·     competition in the financial services industry; and

·     possible legislative, tax or regulatory changes

 

Other possible events or factors that could cause results or performance to differ materially from those expressed in these forward-looking statements include the following: negative economic conditions that adversely affect the general economy, housing prices, the job market, consumer confidence and spending habits which may affect, among other things, the level of non-performing assets, charge-offs and provision expense; changes in interest rates and market liquidity which may reduce interest margins, impact funding sources and affect the ability to originate and distribute financial products in the primary and secondary markets; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial assets and liabilities; liabilities resulting from litigation and regulatory investigations; changes in accounting standards, rules and interpretations; increased competition; Oriental’s ability to grow its core businesses; decisions to downsize, sell or close units or otherwise change Oriental’s business mix; and management’s ability to identify and manage these and other risks.

All forward-looking statements included in this quarterly report on Form 10-Q are based upon information available to Oriental as of the date of this report, and other than as required by law, including the requirements of applicable securities laws, Oriental assumes no obligation to update or revise any such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017

 

  

 

September 30,

 

December 31,

 

 

2018

 

2017

 

 

(In thousands)

ASSETS

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

    Cash and due from banks

 

$

537,945

 

$

478,182

    Money market investments

 

 

5,805

 

 

7,021

        Total cash and cash equivalents

 

 

543,750

 

 

485,203

Restricted cash

 

 

3,030

 

 

3,030

Investments:

 

 

 

 

 

 

    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

 

 

12,461

 

 

13,995

    Other investments

 

 

3

 

 

3

        Total investments

 

 

1,306,100

 

 

1,166,050

Loans:

 

 

 

 

 

 

    Loans held-for-sale, at lower of cost or fair value

 

 

8,979

 

 

12,272

    Loans held for investment, net of allowance for loan and lease losses of $165,742 (December 31, 2017 - $167,509)

 

 

4,344,001

 

 

4,044,057

        Total loans

 

 

4,352,980

 

 

4,056,329

Other assets:

 

 

 

 

 

 

    Foreclosed real estate

 

 

37,868

 

 

44,174

    Accrued interest receivable

 

 

33,452

 

 

49,969

    Deferred tax asset, net

 

 

122,934

 

 

127,421

    Premises and equipment, net

 

 

67,762

 

 

67,860

    Customers' liability on acceptances

 

 

28,682

 

 

27,663

    Servicing assets

 

 

10,866

 

 

9,821

    Derivative assets

 

 

1,265

 

 

771

    Goodwill

 

 

86,069

 

 

86,069

    Other assets

 

 

61,916

 

 

64,693

                Total assets

 

$

6,656,674

 

$

6,189,053

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

1 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2018 AND DECEMBER 31, 2017 (CONTINUED)

 

  

 

September 30,

 

December 31,

 

 

2018

 

2017

 

 

(In thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

    Demand deposits

 

$

2,304,067

 

$

2,039,126

    Savings accounts

 

 

1,243,535

 

 

1,251,398

    Time deposits

 

 

1,541,391

 

 

1,508,958

        Total deposits

 

 

5,088,993

 

 

4,799,482

Borrowings:

 

 

 

 

 

 

    Securities sold under agreements to repurchase

 

 

378,237

 

 

192,869

    Advances from FHLB

 

 

73,531

 

 

99,643

    Subordinated capital notes

 

 

36,083

 

 

36,083

    Other borrowings

 

 

192

 

 

153

        Total borrowings

 

 

488,043

 

 

328,748

Other liabilities:

 

 

 

 

 

 

    Derivative liabilities

 

 

622

 

 

1,281

    Acceptances executed and outstanding

 

 

28,682

 

 

27,644

    Accrued expenses and other liabilities

 

 

80,448

 

 

86,791

            Total liabilities

 

 

5,686,788

 

 

5,243,946

Commitments and contingencies (See Note 20)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

    Preferred stock; 10,000,000 shares authorized;

 

 

 

 

 

 

        1,340,000 shares of Series A, 1,380,000 shares of Series B, and 960,000

           shares of Series D issued and outstanding

 

 

 

 

 

 

           (December 31, 2017 - 1,340,000 shares; 1,380,000 shares; and 960,000

           shares) $25 liquidation value

 

 

92,000

 

 

92,000

        84,000 shares of Series C issued and outstanding (December 31, 2017 -

           84,000 shares); $1,000 liquidation value

 

 

84,000

 

 

84,000

    Common stock, $1 par value; 100,000,000 shares authorized; 52,625,869 shares

        issued: 44,005,741 shares outstanding (December 31, 2017 - 52,625,869;

 

 

 

 

 

 

        43,947,442)

 

 

52,626

 

 

52,626

    Additional paid-in capital

 

 

542,078

 

 

541,600

    Legal surplus

 

 

87,563

 

 

81,454

    Retained earnings

 

 

236,120

 

 

200,878

    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

 

 

969,886

 

 

945,107

                Total liabilities and stockholders’ equity

 

 $  

6,656,674

 

 $  

6,189,053

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

2 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

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, except per share data)

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

        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:

 

 

 

 

 

 

 

 

 

 

 

 

        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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017 (CONTINUED)

 

 

Quarter Ended September 30,

 

Nine-Month Period Ended September 30,

 

2018

 

2017

 

2018

 

2017

 

(In thousands, except per share data)

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

        Compensation and employee benefits

 

18,495

 

 

19,882

 

 

57,202

 

 

59,546

        Professional and service fees

 

3,077

 

 

3,113

 

 

8,917

 

 

9,575

        Occupancy and equipment

 

8,388

 

 

8,276

 

 

25,322

 

 

24,012

        Insurance

 

1,620

 

 

1,052

 

 

4,580

 

 

3,834

        Electronic banking charges

 

5,586

 

 

5,021

 

 

15,968

 

 

15,373

        Information technology expenses

 

2,056

 

 

2,046

 

 

6,064

 

 

6,114

        Advertising, business promotion, and strategic initiatives

 

1,329

 

 

1,405

 

 

3,700

 

 

4,205

        Loss on sale of foreclosed real estate and other repossessed assets

 

1,210

 

 

1,395

 

 

2,828

 

 

4,508

        Loan servicing and clearing expenses

 

1,251

 

 

1,134

 

 

3,639

 

 

3,592

        Taxes, other than payroll and income taxes

 

2,175

 

 

2,243

 

 

6,820

 

 

7,007

        Communication

 

927

 

 

855

 

 

2,627

 

 

2,682

        Printing, postage, stationary and supplies

 

499

 

 

586

 

 

1,748

 

 

1,889

        Director and investor relations

 

223

 

 

221

 

 

800

 

 

775

        Credit related expenses

 

2,736

 

 

1,714

 

 

7,052

 

 

6,557

        Other

 

1,369

 

 

1,526

 

 

8,095

 

 

5,300

                    Total non-interest expense

 

50,941

 

 

50,469

 

 

155,362

 

 

154,969

Income before income taxes

 

35,355

 

 

3,879

 

 

89,526

 

 

49,330

        Income tax expense

 

12,255

 

 

560

 

 

29,860

 

 

13,757

Net income

 

23,100

 

 

3,319

 

 

59,666

 

 

35,573

        Less: dividends on preferred stock

 

(3,466)

 

 

(3,465)

 

 

(10,396)

 

 

(10,396)

Income (loss) available to common shareholders

$

19,634

 

$

(146)

 

$

49,270

 

$

25,177

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

        Basic

$

0.45

 

$

-

 

$

1.12

 

$

0.57

        Diluted

$

0.42

 

$

-

 

$

1.07

 

$

0.56

Average common shares outstanding and equivalents

 

51,464

 

 

51,102

 

 

51,344

 

 

51,095

Cash dividends per share of common stock

$

0.06

 

$

0.06

 

$

0.18

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

4 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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)

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

23,100

 

$

3,319

 

$

59,666

 

$

35,573

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)

     Unrealized gain on cash flow hedges

 

223

 

 

56

 

 

1,153

 

 

136

Other comprehensive (loss) income before taxes

 

(6,152)

 

 

1,497

 

 

(20,187)

 

 

6

     Income tax effect

 

619

 

 

(348)

 

 

2,341

 

 

(760)

Other comprehensive (loss) income after taxes

 

(5,533)

 

 

1,149

 

 

(17,846)

 

 

(754)

Comprehensive income

$

17,567

 

$

4,468

 

$

41,820

 

$

34,819

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

5 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

 

 

 

 

 

 

 

 

  

Nine-Month Period Ended September 30,

  

2018

 

2017

 

 

(In thousands)

Preferred stock:

 

 

 

 

 

 

Balance at beginning of period

$

176,000

 

$

176,000

 

       Balance at end of period

 

176,000

 

 

176,000

 

Common stock:

 

 

 

 

 

 

Balance at beginning of period

 

52,626

 

 

52,626

 

       Balance at end of period

 

52,626

 

 

52,626

 

Additional paid-in capital:

 

 

 

 

 

 

Balance at beginning of period

 

541,600

 

 

540,948

 

Stock-based compensation expense

 

978

 

 

811

 

Stock-based compensation excess tax benefit recognized in income

 

(140)

 

 

(99)

 

Lapsed restricted stock units

 

(360)

 

 

(358)

 

       Balance at end of period

 

542,078

 

 

541,302

 

Legal surplus:

 

 

 

 

 

 

Balance at beginning of period

 

81,454

 

 

76,293

 

Transfer from retained earnings

 

6,109

 

 

3,502

 

       Balance at end of period

 

87,563

 

 

79,795

 

Retained earnings:

 

 

 

 

 

 

Balance at beginning of period

 

200,878

 

 

177,808

 

Net income

 

59,666

 

 

35,573

 

Cash dividends declared on common stock

 

(7,919)

 

 

(7,916)

 

Cash dividends declared on preferred stock

 

(10,396)

 

 

(10,396)

 

Transfer to legal surplus

 

(6,109)

 

 

(3,502)

 

       Balance at end of period

 

236,120

 

 

191,567

 

Treasury stock:

 

 

 

 

 

 

Balance at beginning of period

 

(104,502)

 

 

(104,860)

 

Lapsed restricted stock units

 

796

 

 

358

 

       Balance at end of period

 

(103,706)

 

 

(104,502)

 

Accumulated other comprehensive (loss), net of tax:

 

 

 

 

 

 

Balance at beginning of period

 

(2,949)

 

 

1,596

 

Other comprehensive (loss), net of tax

 

(17,846)

 

 

(754)

 

       Balance at end of period

 

(20,795)

 

 

842

 

Total stockholders’ equity

$

969,886

 

$

937,630

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

 

6 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017

 

 

 

 

 

 

 

 

  

Nine-Month Period Ended September 30,

  

2018

 

2017

 

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

 

Net income

$

59,666

 

$

35,573

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

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

 

3,433

 

 

2,531

 

Amortization of investment securities premiums, net of accretion of discounts

 

4,426

 

 

6,108

 

Amortization of core deposit and customer relationship intangibles

 

989

 

 

1,105

 

FDIC shared-loss benefit

 

-

 

 

(1,403)

 

Depreciation and amortization of premises and equipment

 

6,642

 

 

6,654

 

Deferred income tax expense, net

 

6,827

 

 

(2,619)

 

Provision for loan and lease losses

 

44,808

 

 

88,232

 

Stock-based compensation

 

978

 

 

811

 

Stock-based compensation excess tax benefit recognized in income

 

(140)

 

 

(99)

 

(Gain) loss on:

 

 

 

 

 

 

   Sale of loans

 

(275)

 

 

(792)

 

   Derivatives

 

1

 

 

(103)

 

   Sale of securities

 

-

 

 

(6,896)

 

   Early extinguishment of debt

 

-

 

 

80

 

   Foreclosed real estate and other repossessed assets

 

2,828

 

 

5,084

 

   Sale of other assets

 

(107)

 

 

(539)

 

Originations of loans held-for-sale

 

(72,512)

 

 

(103,194)

 

Proceeds from sale of loans held-for-sale

 

21,593

 

 

68,758

 

Net (increase) decrease in:

 

 

 

 

 

 

   Trading securities

 

(214)

 

 

63

 

   Accrued interest receivable

 

16,517

 

 

(2,509)

 

   Servicing assets

 

(1,045)

 

 

40

 

   Other assets

 

2,405

 

 

14,260

 

Net (decrease) in:

 

 

 

 

 

 

   Accrued interest on deposits and borrowings

 

643

 

 

(345)

 

   Accrued expenses and other liabilities

 

(23,836)

 

 

(4,745)

 

Net cash provided by operating activities

 

73,627

 

 

106,055

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

 

7 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017 (CONTINUED)

 

  

Nine-Month Period Ended September 30,

  

2018

 

2017

 

 

(In thousands)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of:

 

 

 

 

 

 

   Investment securities available-for-sale

 

(271,062)

 

 

(128,969)

 

   FHLB stock

 

(113,506)

 

 

(26,730)

 

Maturities and redemptions of:

 

 

 

 

 

 

   Investment securities available-for-sale

 

89,753

 

 

83,669

 

   Investment securities held-to-maturity

 

58,477

 

 

65,877

 

   FHLB stock

 

115,040

 

 

23,507

 

Proceeds from sales of:

 

 

 

 

 

 

   Investment securities available-for-sale

 

14,746

 

 

256,996

 

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

 

38,816

 

 

31,829

 

   Premises and equipment

 

1,670

 

 

569

 

Origination and purchase of loans, excluding loans held-for-sale

 

(1,015,960)

 

 

(546,616)

 

Principal repayment of loans

 

632,333

 

 

571,098

 

Repayments to FDIC on shared-loss agreements

 

-

 

 

(10,125)

 

Additions to premises and equipment

 

(8,107)

 

 

(4,271)

 

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

 

8 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2018 AND 2017 (CONTINUED)

 

9 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION  

 

Nature of Operations

 

OFG Bancorp (“Oriental”) is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. Oriental operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer, Oriental Financial Services Corp. (“Oriental Financial Services”), an insurance agency, Oriental Insurance LLC. (“Oriental Insurance”), a retirement plan administrator, Oriental Pension Consultants, Inc. (“OPC”), and two operating subsidiaries of the Bank, OFG USA LLC ("OFG USA") and Oriental International Bank Inc. (“OIB”). Through these subsidiaries and their respective divisions, Oriental provides a wide range of banking and financial services such as commercial, consumer and mortgage lending, auto loans, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.

 

On April 30, 2010, the Bank acquired certain assets and assumed certain deposits and other liabilities of Eurobank, a Puerto Rico commercial bank, in an FDIC-assisted acquisition. On February 6, 2017, the Bank and the FDIC agreed to terminate the shared-loss agreements related to the Eurobank Acquisition. On December 18, 2012, Oriental acquired a group of Puerto Rico-based entities that included Banco Bilbao Vizcaya Argentaria Puerto Rico (“BBVAPR”), a Puerto Rico commercial bank, as well as a securities broker-dealer and an insurance agency, which is referred to herein as the “BBVAPR Acquisition.” These acquired businesses have been integrated with Oriental’s existing business.  

 

 

New Accounting Updates 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.

 

Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. In August 2018, the FASB issued ASU 2018-13, which 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 Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. This ASU is the final version of Proposed Accounting Standards Update 2015-350—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 the 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 FASB Accounting Standards Codification (the “Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Some of the 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 do 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 annual periods beginning after December 15, 2018, for public business entities.

10 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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, 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 during the year 2019.

 

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued ASU No. 2016-13, which includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. ASU No. 2016-13 is effective for fiscal years, and interim periods, beginning after December 15, 2019. Oriental will implement ASU No. 2016-13 on January 1, 2020. While we continue to assess the impact of ASU No. 2016-13, we have developed a roadmap with time schedules in place from 2016 to implementation date. Oriental's cross-functional implementation team has developed a project plan to ensure we comply with all updates from this ASU at the time of adoption. We recently have 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.

 

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. The standard requires application using a retrospective transition method. The adoption of ASU No. 2016-18 on January 1, 2018, changed the presentation and classification of restricted cash and restricted cash equivalents in our consolidated statements of cash flows.

 

Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, which supersedes the revenue recognition requirements Topic 605 (Revenue Recognition), and most industry-specific guidance. ASU No. 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date of ASU No. 2014-09 by one year to fiscal years beginning after December 15, 2017. Oriental has adopted this ASU on January 1, 2018 using the modified retrospective method. Oriental’s implementation efforts included the identification of revenue streams that are within the scope of the new guidance and the review of related contracts with customers to determine their effect on certain non-interest income items presented in our consolidated statements of operations and the additional presentation disclosures required (refer to note 22). We concluded that substantially all of Oriental’s revenues are generated from activities that are outside the scope of this ASU, and the adoption did not have a material impact on our consolidated financial statements. Therefore, there was no cumulative effect adjustment recorded.

 

NOTE 2 SIGNIFICANT EVENTS

 

Hurricanes Irma and Maria

 

During 2017, Oriental was impacted by hurricanes Irma and Maria, which struck the Island on September 7, 2017 and September 20, 2017, respectively. Hurricane Maria caused catastrophic damages throughout Puerto Rico, including homes, businesses, roads, bridges, power lines, commercial establishments, and public facilities. It caused an unprecedented crisis when it ravaged the Island’s electric power grid less than two weeks after hurricane Irma left over a million Puerto Rico residents without power. For several months after the hurricanes, a large part of Puerto Rico was without electricity, many businesses were unable to operate, and government authorities struggled to deliver emergency supplies and clean drinking water to many communities outside the San Juan metropolitan area. Further, payment and delivery systems, including the U.S. Post Office, were unable to operate for weeks after hurricane Maria.      

 

Almost all of Oriental’s operations and clients are located in Puerto Rico. Although Oriental’s business operations were disrupted by major damages to Puerto Rico’s critical infrastructure, including its electric power grid and telecommunications network, Oriental’s digital channels, core banking and electronic funds transfer systems continued to function uninterrupted during and after the hurricanes. Within days after hurricane Maria, and upon securing a continuing supply of diesel fuel for its electric power generators, Oriental was able to open its main offices and many of its branches and ATMs in addition to its digital and phone trade channels.

 

As a result of this event, and based on current assessments of information available for the impact of the hurricanes on our credit portfolio, 2017 third and fourth quarter results included an additional loan loss provision of $27.0 million and $5.4 million, respectively.

 

Oriental implemented its disaster response plan as these storms approached its service areas. To operate in disaster response mode, Oriental incurred expenses for, among other things, buying diesel and generators for electric power, debris removal, security 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 $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 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)

 

NOTE 3 – RESTRICTED CASH

 

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

 

   

September 30,

 

December 31,

 

2018

 

2017

 

(In thousands)

Cash pledged as collateral to other financial institutions to secure:

 

 

 

 

 

    Derivatives

$

1,980

 

$

1,980

    Obligations under agreement of loans sold with recourse

 

1,050

 

 

1,050

 

$

3,030

 

$

3,030

 

At both September 30, 2018 and  December 31, 2017, the Bank’s international banking entities, 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 $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law.  These instruments cannot be withdrawn or transferred by OIB or Oriental Overseas without prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (the "OCFI").

 

As part of its derivative activities, Oriental has entered into collateral agreements with certain financial counterparties.  At both September 30, 2018 and December 31, 2017, Oriental had delivered approximately $2.0 million of cash as collateral for such derivatives activities.

 

Oriental has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both September 30, 2018 and December 31, 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, 2018 was $212.7 million (December 31, 2017 - $189.2 million). At September 30, 2018 and December 31, 2017, the Bank complied with this requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

13 


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, 2018 and December 31, 2017, money market instruments included as part of cash and cash equivalents amounted to $5.8 million and $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, 2018 and December 31, 2017 were as follows:

 

  

September 30, 2018

 

 

 

Gross

 

Gross

 

 

 

Weighted

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Average

  

Cost

 

Gains

 

Losses

 

Value

 

Yield

 

(In thousands)

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

586,097

 

$

20

 

$

15,799

 

$

570,318

 

2.59%

        GNMA certificates

 

202,585

 

 

300

 

 

5,431

 

 

197,454

 

3.06%

        CMOs issued by US government-sponsored agencies

 

69,960

 

 

-

 

 

3,194

 

 

66,766

 

1.90%

            Total mortgage-backed securities

 

858,642

 

 

320

 

 

24,424

 

 

834,538

 

2.64%

    Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

 

10,617

 

 

-

 

 

157

 

 

10,460

 

1.32%

        Obligations of US government-sponsored agencies

 

2,484

 

 

-

 

 

89

 

 

2,395

 

1.38%

        Other debt securities

 

1,152

 

 

7

 

 

-

 

 

1,159

 

2.99%

            Total investment securities

 

14,253

 

 

7

 

 

246

 

 

14,014

 

1.46%

               Total securities available for sale

$

872,895

 

$

327

 

$

24,670

 

$

848,552

 

2.62%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

444,679

 

$

-

 

$

19,613

 

$

425,066

 

2.07%

14 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

  

December 31, 2017

 

 

 

Gross

 

Gross

 

 

 

Weighted

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Average

  

Cost

 

Gains

 

Losses

 

Value

 

Yield

 

(In thousands)

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

383,194

 

$

1,402

 

$

2,881

 

$

381,715

 

2.39%

        GNMA certificates

 

166,436

 

 

1,486

 

 

584

 

 

167,338

 

2.94%

        CMOs issued by US government-sponsored agencies

 

82,026

 

 

-

 

 

1,955

 

 

80,071

 

1.90%

            Total mortgage-backed securities

 

631,656

 

 

2,888

 

 

5,420

 

 

629,124

 

2.47%

    Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

 

10,276

 

 

-

 

 

113

 

 

10,163

 

1.25%

        Obligations of US government-sponsored agencies

 

2,927

 

 

-

 

 

48

 

 

2,879

 

1.38%

        Obligations of Puerto Rico government and

            public instrumentalities

 

2,455

 

 

-

 

 

362

 

 

2,093

 

5.55%

        Other debt securities

 

1,486

 

 

52

 

 

-

 

 

1,538

 

2.97%

            Total investment securities

 

17,144

 

 

52

 

 

523

 

 

16,673

 

2.04%

                Total securities available-for-sale

$

648,800

 

$

2,940

 

$

5,943

 

$

645,797

 

2.46%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

506,064

 

$

-

 

$

8,383

 

$

497,681

 

2.07%

 

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

15 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

September 30, 2018

  

Available-for-sale

 

Held-to-maturity

 

Amortized Cost

 

Fair Value

 

Amortized Cost

 

Fair Value

 

(In thousands)

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

    Due from 1 to 5 years

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

4,241

 

$

4,142

 

$

-

 

$

-

            Total due from 1 to 5 years

 

4,241

 

 

4,142

 

 

-

 

 

-

    Due after 5 to 10 years

 

 

 

 

 

 

 

 

 

 

 

        CMOs issued by US government-sponsored agencies

$

61,590

 

$

58,617

 

$

-

 

$

-

        FNMA and FHLMC certificates

 

235,031

 

 

228,438

 

 

-

 

 

-

            Total due after 5 to 10 years

 

296,621

 

 

287,055

 

 

-

 

 

-

    Due after 10 years

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

346,825

 

$

337,738

 

$

444,679

 

$

425,066

        GNMA certificates

 

202,585

 

 

197,454

 

 

-

 

 

-

        CMOs issued by US government-sponsored agencies

 

8,370

 

 

8,149

 

 

-

 

 

-

            Total due after 10 years

 

557,780

 

 

543,341

 

 

444,679

 

 

425,066

                Total  mortgage-backed securities

 

858,642

 

 

834,538

 

 

444,679

 

 

425,066

Investment securities

 

 

 

 

 

 

 

 

 

 

 

    Due less than one year

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

$

646

 

$

645

 

$

-

 

$

-

            Total due in less than one year

 

646

 

 

645

 

 

-

 

 

-

    Due from 1 to 5 years

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

$

9,971

 

$

9,815

 

$

-

 

$

-

        Obligations of US government and sponsored agencies

 

2,484

 

 

2,395

 

 

-

 

 

-

            Total due from 1 to 5 years

 

12,455

 

 

12,210

 

 

-

 

 

-

    Due from 5 to 10 years

 

 

 

 

 

 

 

 

 

 

 

        Other debt securities

 

1,152

 

 

1,159

 

 

-

 

 

-

            Total due after 5 to 10 years

 

1,152

 

 

1,159

 

 

-

 

 

-

                Total  investment securities

 

14,253

 

 

14,014

 

 

-

 

 

-

Total

$

872,895

 

$

848,552

 

$

444,679

 

$

425,066

 

 

 

 

 

 

 

 

 

 

 

 

16 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

During the nine month-period ended September 30, 2018, Oriental sold $14.7 million of available-for-sale Government National Mortgage Association (“GNMA”) certificates from its recurring mortgage loan origination and securitization activities. These sales did not realize any gains or losses during such period. 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.

 

 

Nine-Month Period Ended September 30, 2018

 

 

 

Book Value

 

 

 

 

Description

Sale Price

 

at Sale

 

Gross Gains

 

Gross Losses

 

(In thousands)

Sale of securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

        GNMA certificates

$

14,746

 

$

14,746

 

$

-

 

$

-

Total

$

14,746

 

$

14,746

 

$

-

 

$

-

 

 

Nine-Month Period Ended September 30, 2017

 

 

 

Book Value

 

 

 

 

Description

Sale Price

 

at Sale

 

Gross Gains

 

Gross Losses

 

(In thousands)

Sale of securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

107,510

 

$

102,311

 

$

5,199

 

$

-

        GNMA certificates

 

65,284

 

 

63,704