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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)

 

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

     EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common shares, par value $1.00 per share

OFG

New York Stock Exchange

7.125% Noncumulative Monthly Income Preferred Stock, Series A ($25.00 liquidation preference per share)

 

OFG.PRA

New York Stock Exchange

7.0% Noncumulative Monthly Income Preferred Stock, Series B ($25.00 liquidation preference per share)

 

OFG.PRB

New York Stock Exchange

7.125% Noncumulative Perpetual Preferred Stock, Series D ($25.00 liquidation preference per share)

 

OFG.PRD

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No☐ 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No ☐ 

 

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

 

Large Accelerated Filer ☐ 

Accelerated Filer

Non-Accelerated Filer ☐ 

Smaller Reporting Company

Emerging Growth Company

 

 

 

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

 

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

 

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

 

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

 


 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

Page

Item 1.

Financial Statements

 

 

Unaudited Consolidated Statements of Financial Condition

1

 

Unaudited Consolidated Statements of Operations

3

 

Unaudited Consolidated Statements of Comprehensive Income

5

 

Unaudited Consolidated Statements of Changes in Stockholders’ Equity

6

 

Unaudited Consolidated Statements of Cash Flows

7

 

Notes to Unaudited Consolidated Financial Statements

 

 

 

 

 

 

Note 1 – Organization, Consolidation and Basis of Presentation

9

 

 

Note 2 – Significant Events

11

 

 

Note 3 – Restricted Cash

12

 

 

Note 4 – Investment Securities

12

 

 

Note 5 – Loans  

18

 

 

Note 6 – Allowance for Loan and Lease Losses

46

 

 

Note 7 – Foreclosed Real Estate

56

 

 

Note 8 – Derivatives

57

 

 

Note 9 – Accrued Interest Receivable and Other Assets

58

 

 

Note 10 – Deposits and Related Interest

59

 

 

Note 11 – Borrowings and Related Interest

61

 

 

Note 12 – Offsetting of Financial Assets and Liabilities

63

 

 

Note 13 – Income Taxes

66

 

 

Note 14 – Regulatory Capital Requirements

67

 

 

Note 15 – Stockholders’ Equity

69

 

 

Note 16 – Accumulated Other Comprehensive Income

70

 

 

Note 17 – Earnings per Common Share

73

 

 

Note 18 – Guarantees

74

 

 

Note 19 – Commitments and Contingencies

75

 

 

Note 20 – Operating Leases

76

 

 

Note 21 – Fair Value of Financial Instruments

78

 

 

Note 22 – Banking and Financial Service Revenues

85

 

 

Note 23 – Business Segments

87

 

 

 

Item 2.

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

90

 

 

Critical Accounting Policies and Estimates  

91

 

 

Selected Financial Data

92

 

 

Financial Highlights of the Second Quarter of 2019

94

 

 

Analysis of Results of Operations  

94

 

 

Analysis of Financial Condition  

108

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

132

Item 4.

Controls and Procedures

136

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings

137

Item 1A.

Risk Factors

137

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

138

Item 3.

Default upon Senior Securities

138

Item 4.

Mine Safety Disclosures

138

Item 5.

Other Information

138

Item 6.

Exhibits

139

Signatures

140

 

 

 

 

 


 

FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

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

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

·      amendments to the fiscal plan approved by the Financial Oversight and Management Board for Puerto Rico;

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

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

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

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

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

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

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

·      the performance of the stock and bond markets;

·      competition in the financial services industry; 

·      possible legislative, tax or regulatory changes

·      the receipt and timing of regulatory approvals required to consummate the acquisition of Scotiabank Puerto Rico (“SBPR”) and certain branch assets and liabilities in Puerto Rico and the U.S. Virgin Islands operations of The Bank of Nova Scotia (“BNS”) and the acquisition referred to as the “Scotiabank Transaction”; and

·      difficulties in integrating the operations expected to be acquired in the Scotiabank Transaction (“SBPR”).

 

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

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

 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF JUNE 30, 2019 AND DECEMBER 31, 2018

 

  

 

June 30,

 

December 31,

 

 

2019

 

2018

 

 

(In thousands)

ASSETS

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

    Cash and due from banks

 

$

668,896

 

$

442,103

    Money market investments

 

 

7,485

 

 

4,930

        Total cash and cash equivalents

 

 

676,381

 

 

447,033

Restricted cash

 

 

1,049

 

 

3,030

Investments:

 

 

 

 

 

 

    Trading securities, at fair value, with amortized cost of $511 (December 31, 2018 - $647)

 

 

412

 

 

360

    Investment securities available-for-sale, at fair value, with amortized cost of $860,911 (December 31, 2018 - $854,511)

 

 

857,433

 

 

841,857

    Investment securities held-to-maturity, at amortized cost, with fair value of $410,353 at December 31, 2018

 

 

-

 

 

424,740

    Federal Home Loan Bank (FHLB) stock, at cost

 

 

12,821

 

 

12,644

    Other investments

 

 

3

 

 

3

        Total investments

 

 

870,669

 

 

1,279,604

Loans:

 

 

 

 

 

 

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

 

 

14,676

 

 

10,368

    Loans held for investment, net of allowance for loan losses of $162,642 (December 31, 2018 - $164,231)

 

 

4,459,821

 

 

4,421,226

        Total loans

 

 

4,474,497

 

 

4,431,594

Other assets:

 

 

 

 

 

 

    Foreclosed real estate

 

 

29,509

 

 

33,768

    Accrued interest receivable

 

 

33,909

 

 

34,254

    Deferred tax asset, net

 

 

111,147

 

 

113,763

    Premises and equipment, net

 

 

71,001

 

 

68,892

    Customers' liability on acceptances

 

 

23,610

 

 

16,937

    Servicing assets

 

 

10,134

 

 

10,716

    Derivative assets

 

 

26

 

 

347

    Goodwill

 

 

86,069

 

 

86,069

    Operating lease right-of-use assets

 

 

20,419

 

 

-

    Other assets

 

 

55,707

 

 

57,345

                Total assets

 

$

6,464,127

 

$

6,583,352

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

  

1 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

 

  

 

June 30,

 

December 31,

 

 

2019

 

2018

 

 

(In thousands)

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

    Demand deposits

 

$

2,219,911

 

$

2,191,802

    Savings accounts

 

 

1,222,109

 

 

1,212,259

    Time deposits

 

 

1,503,117

 

 

1,504,054

        Total deposits

 

 

4,945,137

 

 

4,908,115

Borrowings:

 

 

 

 

 

 

    Securities sold under agreements to repurchase

 

 

240,324

 

 

455,508

    Advances from FHLB

 

 

80,085

 

 

77,620

    Subordinated capital notes

 

 

36,083

 

 

36,083

    Other borrowings

 

 

338

 

 

1,214

        Total borrowings

 

 

356,830

 

 

570,425

Other liabilities:

 

 

 

 

 

 

    Derivative liabilities

 

 

985

 

 

333

    Acceptances executed and outstanding

 

 

23,610

 

 

16,937

    Operating lease liabilities

 

 

22,179

 

 

-

    Accrued expenses and other liabilities

 

 

70,512

 

 

87,665

            Total liabilities

 

 

5,419,253

 

 

5,583,475

Commitments and contingencies (See Note 18)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

    Preferred stock; 10,000,000 shares authorized;

 

 

 

 

 

 

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

           shares of Series D issued and outstanding

 

 

 

 

 

 

           (December 31, 2018 - 1,340,000 shares; 1,380,000 shares; and 960,000

           shares) $25 liquidation value

 

 

92,000

 

 

92,000

    Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares

        issued: 51,330,031 shares outstanding (December 31, 2018 - $59,885,234;

 

 

 

 

 

 

       51,293,924)

 

 

59,885

 

 

59,885

    Additional paid-in capital

 

 

620,368

 

 

619,381

    Legal surplus

 

 

95,019

 

 

90,167

    Retained earnings

 

 

284,459

 

 

253,040

    Treasury stock, at cost, 8,555,203 shares (December 31, 2018 - 8,591,310 shares)

 

 

(103,171)

 

 

(103,633)

     Accumulated other comprehensive loss, net of tax of $750 (December 31, 2018 - $1,677)

 

 

(3,686)

 

 

(10,963)

            Total stockholders’ equity

 

 

1,044,874

 

 

999,877

                Total liabilities and stockholders’ equity

 

 $  

6,464,127

 

 $  

6,583,352

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

2 


OFG BANCORP

UNADUTIED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

Quarter Ended June 30,

 

 

Six-Month Period Ended June 30,

 

2019

 

2018

 

 

2019

 

2018

 

(In thousands, except per share data)

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

        Loans

$

85,080

 

$

78,429

 

 

$

169,199

 

$

153,041

        Mortgage-backed securities

 

5,987

 

 

8,034

 

 

 

13,912

 

 

15,085

        Investment securities and other

 

3,188

 

 

1,543

 

 

 

5,854

 

 

3,050

                    Total interest income

 

94,255

 

 

88,006

 

 

 

188,965

 

 

171,176

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

        Deposits

 

9,991

 

 

7,651

 

 

 

19,040

 

 

14,949

        Securities sold under agreements to repurchase

 

2,106

 

 

1,840

 

 

 

4,892

 

 

2,918

        Advances from FHLB and other borrowings

 

559

 

 

448

 

 

 

1,121

 

 

822

        Subordinated capital notes

 

514

 

 

479

 

 

 

1,038

 

 

905

                    Total interest expense

 

13,170

 

 

10,418

 

 

 

26,091

 

 

19,594

Net interest income

 

81,085

 

 

77,588

 

 

 

162,874

 

 

151,582

Provision for loan losses, net

 

17,705

 

 

14,747

 

 

 

29,954

 

 

30,207

Net interest income after provision for loan and lease losses

 

63,380

 

 

62,841

 

 

 

132,920

 

 

121,375

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

        Banking service revenue

 

10,776

 

 

11,144

 

 

 

21,241

 

 

21,607

        Wealth management revenue

 

6,669

 

 

6,262

 

 

 

12,551

 

 

12,281

        Mortgage banking activities

 

629

 

 

988

 

 

 

1,835

 

 

2,745

                    Total banking and financial service revenues

 

18,074

 

 

18,394

 

 

 

35,627

 

 

36,633

 

 

 

 

 

 

 

 

 

 

 

 

 

            Sale of securities

 

4,776

 

 

-

 

 

 

4,776

 

 

-

            Early extinguishment of debt

 

(7)

 

 

-

 

 

 

(7)

 

 

-

        Other non-interest income

 

105

 

 

309

 

 

 

208

 

 

584

                    Total non-interest income, net

 

22,948

 

 

18,703

 

 

 

40,604

 

 

37,217

See notes to unaudited consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS AND SIX-MONTH PERIODS ENDED JUNE 30, 2019 AND 2018 (CONTINUED)

 

 

Quarter Ended June 30,

 

 

Six-Month Period Ended June 30,

 

2019

 

2018

 

 

2019

 

2018

 

(In thousands, except per share data)

Non-interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

        Compensation and employee benefits

 

19,875

 

 

18,099

 

 

 

40,216

 

 

38,707

        Occupancy, equipment and infrastructure costs

 

7,511

 

 

9,166

 

 

 

15,257

 

 

16,934

        Electronic banking charges

 

5,128

 

 

5,415

 

 

 

10,193

 

 

10,382

        Professional and service fees

 

3,427

 

 

3,146

 

 

 

6,635

 

 

5,840

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

 

2,584

 

 

2,289

 

 

 

5,950

 

 

5,934

        Information technology expenses

 

2,200

 

 

2,000

 

 

 

4,707

 

 

4,009

        Taxes, other than payroll and income taxes

 

2,142

 

 

2,384

 

 

 

4,295

 

 

4,645

        Advertising, business promotion, and strategic initiatives

 

1,315

 

 

1,024

 

 

 

2,526

 

 

2,371

        Insurance

 

1,277

 

 

1,482

 

 

 

2,423

 

 

2,960

        Loan servicing and clearing expenses

 

1,160

 

 

1,227

 

 

 

2,368

 

 

2,388

        Merger and restructuring charges

 

1,000

 

 

-

 

 

 

1,000

 

 

-

        Communication

 

859

 

 

815

 

 

 

1,599

 

 

1,700

        Printing, postage, stationary and supplies

 

636

 

 

605

 

 

 

1,214

 

 

1,249

        Director and investor relations

 

330

 

 

337

 

 

 

560

 

 

577

        Other

 

2,008

 

 

4,311

 

 

 

4,661

 

 

6,725

                    Total non-interest expense

 

51,452

 

 

52,300

 

 

 

103,604

 

 

104,421

Income before income taxes

 

34,876

 

 

29,244

 

 

 

69,920

 

 

54,171

        Income tax expense

 

10,897

 

 

9,595

 

 

 

22,471

 

 

17,605

Net income

 

23,979

 

 

19,649

 

 

 

47,449

 

 

36,566

        Less: dividends on preferred stock

 

(1,628)

 

 

(3,465)

 

 

 

(3,256)

 

 

(6,930)

Income available to common shareholders

$

22,351

 

$

16,184

 

 

$

44,193

 

$

29,636

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

        Basic

$

0.44

 

$

0.36

 

 

$

0.86

 

$

0.67

        Diluted

$

0.43

 

$

0.35

 

 

$

0.86

 

$

0.65

Average common shares outstanding and equivalents

 

51,680

 

 

51,226

 

 

 

51,652

 

 

51,157

Cash dividends per share of common stock

$

0.07

 

$

0.06

 

 

$

0.14

 

$

0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

4 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Quarter Ended June 30,

 

 

Six-Month Period Ended June 30,

 

2019

 

2018

 

 

2019

 

2018

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

23,979

 

$

19,649

 

 

$

47,449

 

$

36,566

Other comprehensive income before tax:

 

 

 

 

 

 

 

 

 

 

 

 

     Unrealized gain (loss) on securities available-for-sale

 

10,578

 

 

(3,638)

 

 

 

13,952

 

 

(14,964)

     Realized gain on sale of securities available-for-sale

 

(4,776)

 

 

-

 

 

 

(4,776)

 

 

-

     Unrealized (loss) gain on cash flow hedges

 

(629)

 

 

275

 

 

 

(972)

 

 

931

Other comprehensive gain (loss) before taxes

 

5,173

 

 

(3,363)

 

 

 

8,204

 

 

(14,033)

     Income tax effect

 

(812)

 

 

286

 

 

 

(927)

 

 

1,720

Other comprehensive income (loss) after taxes

 

4,361

 

 

(3,077)

 

 

 

7,277

 

 

(12,313)

Comprehensive income

$

28,340

 

$

16,572

 

 

$

54,726

 

$

24,253

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

5 


OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

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

 

 

 

 

 

 

 

 

 

 

 

 

 

  

Quarter Ended June 30,

 

Six-Month Period Ended June 30,

  

2019

 

2018

 

2019

 

2018

 

(In thousands)

Preferred stock:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

92,000

 

$

176,000

 

$

92,000

 

$

176,000

       Balance at end of period

 

92,000

 

 

176,000

 

 

92,000

 

 

176,000

Common stock:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

59,885

 

 

52,626

 

 

59,885

 

 

52,626

       Balance at end of period

 

59,885

 

 

52,626

 

 

59,885

 

 

52,626

Additional paid-in capital:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

619,828

 

 

541,404

 

 

619,381

 

 

541,600

Stock-based compensation expense

 

540

 

 

343

 

 

987

 

 

635

Stock-based compensation excess tax benefit recognized in income

 

-

 

 

(13)

 

 

-

 

 

(140)

Lapsed restricted stock units

 

-

 

 

-

 

 

-

 

 

(361)

       Balance at end of period

 

620,368

 

 

541,734

 

 

620,368

 

 

541,734

Legal surplus:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

92,621

 

 

83,138

 

 

90,167

 

 

81,454

Transfer from retained earnings

 

2,398

 

 

2,111

 

 

4,852

 

 

3,795

       Balance at end of period

 

95,019

 

 

85,249

 

 

95,019

 

 

85,249

Retained earnings:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

268,101

 

 

210,008

 

 

253,040

 

 

200,878

Lease standard initial adoption

 

-

 

 

-

 

 

(736)

 

 

-

Net income

 

23,979

 

 

19,649

 

 

47,449

 

 

36,566

Cash dividends declared on common stock

 

(3,595)

 

 

(2,640)

 

 

(7,186)

 

 

(5,278)

Cash dividends declared on preferred stock

 

(1,628)

 

 

(3,465)

 

 

(3,256)

 

 

(6,930)

Transfer to legal surplus

 

(2,398)

 

 

(2,111)

 

 

(4,852)

 

 

(3,795)

       Balance at end of period

 

284,459

 

 

221,441

 

 

284,459

 

 

221,441

Treasury stock:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

(103,196)

 

 

(104,142)

 

 

(103,633)

 

 

(104,502)

Lapsed restricted stock units and options

 

25

 

 

173

 

 

462

 

 

533

       Balance at end of period

 

(103,171)

 

 

(103,969)

 

 

(103,171)

 

 

(103,969)

Accumulated other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

(8,047)

 

 

(12,185)

 

 

(10,963)

 

 

(2,949)

Other comprehensive (loss), net of tax:

 

4,361

 

 

(3,077)

 

 

7,277

 

 

(12,313)

       Balance at end of period

 

(3,686)

 

 

(15,262)

 

 

(3,686)

 

 

(15,262)

Total stockholders’ equity

$

1,044,874

 

$

957,819

 

$

1,044,874

 

$

957,819

 

 

 

 

 

 

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

6 


OFG BANCORP 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 

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

 

 

 

 

 

 

 

  

Six-Month Period Ended June 30,

  

2019

 

2018

 

(In thousands)

Cash flows from operating activities:

 

 

 

 

 

Net income

$

47,449

 

$

36,566

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

 

 

 

 

 

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

 

1,951

 

 

2,296

Amortization of investment securities premiums, net of accretion of discounts

 

2,602

 

 

3,045

Amortization of core deposit and customer relationship intangibles

 

585

 

 

659

Net change in operating leases

 

12

 

 

-

Depreciation and amortization of premises and equipment

 

4,209

 

 

4,454

Deferred income tax expense, net

 

1,689

 

 

4,001

Provision for loan losses, net

 

29,954

 

 

30,207

Stock-based compensation

 

987

 

 

635

Stock-based compensation excess tax benefit recognized in income

 

-

 

 

(140)

(Gain) loss on:

 

 

 

 

 

   Sale of securities

 

(4,776)

 

 

-

   Sale of loans

 

(256)

 

 

(185)

   Derivatives

 

1

 

 

-

   Early extinguishment of repurchase agreements

 

7

 

 

-

   Foreclosed real estate and other repossessed assets

 

1,821

 

 

1,436

   Sale of other repossessed assets

 

(55)

 

 

(9)

   Sale of other assets

 

(29)

 

 

(44)

Originations of loans held-for-sale

 

(38,290)

 

 

(47,929)

Proceeds from sale of loans held-for-sale

 

9,735

 

 

11,306

Net (increase) decrease in:

 

 

 

 

 

   Trading securities

 

(52)

 

 

(227)

   Accrued interest receivable

 

345

 

 

15,493

   Servicing assets

 

582

 

 

(1,008)

   Other assets

 

958

 

 

6,683

Net (decrease) in:

 

 

 

 

 

   Accrued interest on deposits and borrowings

 

(1,034)

 

 

(359)

   Accrued expenses and other liabilities

 

(24,027)

 

 

(18,419)

Net cash provided by operating activities

 

34,368

 

 

48,461

 

 

 

 

 

 

See notes to unaudited consolidated financial statements

7 


OFG BANCORP 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2019 AND 2018 (CONTINUED) 

 

  

Six-Month Period Ended June 30,

  

2019

 

2018

 

(In thousands)

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

   Investment securities available-for-sale

 

(784)

 

 

(259,665)

   FHLB stock

 

(1,167)

 

 

(99,365)

Maturities and redemptions of:

 

 

 

 

 

   Investment securities available-for-sale

 

92,634

 

 

54,727

   Investment securities held-to-maturity

 

-

 

 

38,640

   FHLB stock

 

990

 

 

98,441

Proceeds from sales of:

 

 

 

 

 

   Investment securities available-for-sale

 

354,501

 

 

-

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

 

24,452

 

 

25,059

   Premises and equipment

 

42

 

 

873

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

 

(564,647)

 

 

(693,586)

Principal repayment of loans

 

463,287

 

 

382,191

Additions to premises and equipment

 

(6,331)

 

 

(3,597)

Net cash provided by (used in) investing activities

$

362,977

 

$

(456,282)

Cash flows from financing activities:

 

 

 

 

 

Net increase (decrease) in:

 

 

 

 

 

   Deposits

 

52,745

 

 

86,293

   Securities sold under agreements to repurchase

 

(214,730)

 

 

194,879

   FHLB advances, federal funds purchased, and other borrowings

 

1,585

 

 

28,816

Restricted units lapsed

 

462

 

 

172

Dividends paid on preferred stock

 

(2,855)

 

 

(6,930)

Dividends paid on common stock

 

(7,185)

 

 

(5,277)

Net cash (used in) provided by financing activities

$

(169,978)

 

$

297,953

Net change in cash, cash equivalents and restricted cash

 

227,367

 

 

(109,868)

Cash, cash equivalents and restricted cash at beginning of period

 

450,063

 

 

488,233

Cash, cash equivalents and restricted cash at end of period

$

677,430

 

 $  

378,365

Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

   Cash and due from banks

$

668,896

 

 $  

368,344

   Money market investments

 

7,485

 

 

6,991

   Restricted cash

 

1,049

 

 

3,030

Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

$

677,430

 

$

378,365

 

 

 

 

 

 

Interest paid

$

26,324

 

$

19,095

Income taxes paid

$

29,371

 

$

8,890

Operating lease liabilities paid

$

3,329

 

$

-

Mortgage loans securitized into mortgage-backed securities

$

25,837

 

$

37,618

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

$

424,740

 

$

-

Transfer from loans to foreclosed real estate and other repossessed assets

$

22,183

 

$

25,465

Reclassification of loans held-for-investment portfolio to held-for-sale portfolio

$

1,383

 

$

-

Reclassification of loans held-for-sale portfolio to held-for-investment portfolio

$

49

 

$

1,247

Financed sales of foreclosed real estate

$

703

 

$

667

Loans booked under the GNMA buy-back option

$

11,675

 

$

14,521

Initial recognition of operating lease right-of-use assets

$

21,930

 

$

-

Initial recognition of operating lease liabilities

$

23,689

 

$

-

See notes to unaudited consolidated financial statements

8 


OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 –  ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION  

 

Nature of Operations

 

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

 

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

 

New Accounting Updates Adopted in 2019

 

Leases. In February 2016, the FASB issued ASU No. 2016-02 (Topic 842), the FASB issued ASU No. 2016-02, under the new guidance, lessees are required to recognize the following for all leases (with the exception of short-term leases): 1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. As Oriental elected the transition option provided in ASU No. 2018-11 (see below), the modified retrospective approach was applied on January 1, 2019 (as opposed to January 1, 2017). Oriental also elected certain relief options offered in ASU 2016-02 including the package of practical expedients and the option not to recognize right-of-use assets and lease liabilities that arise from short-term leases (i.e., leases with terms of twelve months or less). Oriental also elected the hindsight practical expedient, which allows entities to use hindsight when determining lease term and impairment of right-of-use assets. Oriental has several lease agreements, mainly branch locations, which are considered operating leases, and therefore, were not previously recognized on Oriental’s consolidated statements of financial condition. The new guidance requires these lease agreements to be recognized on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. The new guidance did not have a material impact on the consolidated statements of operations or the consolidated statements of cash flows. See Note 19 Leases for more information.

 

Leases - Targeted Improvements. In July 2018, the FASB issued ASU No. 2018-11 to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (January 1, 2019 for Oriental). Oriental adopted ASU 2018-11 on its required effective date of January 1, 2019 and elected both transition options mentioned above. ASU 2018-11 did not have a material impact on Oriental’s consolidated financial statements.

 

9 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Narrow-Scope Improvements for Lessors. In December 2018, the FASB issued ASU No. 2018-20 which allows lessors to make an accounting policy election of presenting sales taxes and other similar taxes collected from lessees on a net basis, (2) requires a lessor to exclude lessor costs paid directly by a lessee to third parties on the lessor’s behalf and include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense, and (3) clarifies that when lessors allocate variable payments to lease and non-lease components they are required to follow the recognition guidance in the new leases standard for the lease component and other applicable guidance, such as the new revenue standard, for the non-lease component. Oriental adopted ASU 2018-20 on its required effective date of January 1, 2019 and elected to present sales taxes and other similar taxes collected from lessees on a net basis as described in (1) above. ASU 2018-20 did not have a material impact on Oriental’s consolidated financial statements.

 

Leases: Codification Improvements. In March 2019, the FASB issued ASU No. 2019-01 which states that for lessors that are not manufacturers or dealers, the fair value of the underlying asset is its cost, less any volume or trade discounts, as long as there isn’t a significant amount of time between acquisition of the asset and lease commencement; (2) clarifies that lessors in the scope of ASC 942 (such as Oriental) must classify principal payments received from sales-type and direct financing leases in investing activities in the statement of cash flows; and (3) clarifies the transition guidance related to certain interim disclosures provided in the year of adoption. To coincide with the adoption of ASU No. 2016-02, Oriental elected to early adopt ASU 2019-01 on January 1, 2019. The adoption of this ASU did not have a material impact on Oriental’s consolidated financial statements.

 

Targeted Improvements to Accounting for Hedging Activities. In August 2017, the FASB issued ASU No. 2017-12 with the objectives to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities; and (2) reduce the complexity of and simplify the application of hedge accounting by preparers. This guideline allows the entity to elect whether to perform quantitative or qualitative assessments for their hedge accounting transactions. In addition, the guideline provides that “an entity may reclassify a debt security from held-to-maturity (HTM) to available-for-sale (AFS) if the debt security is eligible to be hedged under the last-of-layer method in accordance with paragraph 815-20-25-12A. Any unrealized gain or loss at the date of the transfer shall be recorded in accumulated other comprehensive income in accordance with paragraph 320-10-35-10(c).” Transition elections must be adopted within the timeframe outlined in paragraphs 815-20-65-3(f) to 65-3(g). This includes the transition election available for the transfer of eligible securities from the HTM to the AFS category. ASU No. 2017-12 is effective for interim and annual reporting periods beginning after December 15, 2018. Oriental elected to maintain its current quantitative assessment for the existing hedge accounting transaction. In addition, Oriental elected to reclassify all of the securities in its held-to-maturity portfolio amounting to $424.7 million to its available-for-sale portfolio, as they were debt securities that qualified as eligible to be hedged under the last-of-layer method. The new guidance did not have a material impact on the consolidated statements of operations or the consolidated statement of cash flows.

 

New Accounting Updates Not Yet Adopted

 

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

 

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

10 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

December 15, 2019.  Implementation on a prospective or retrospective basis varies by specific disclosure requirement.  Early adoption is permitted. The standard also allows for early adoption of any removed or modified disclosures upon issuance of this ASU while delaying adoption of the additional disclosures until their effective date.

 

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued ASU No. 2017-04, which simplifies the measurement of goodwill impairment. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This ASU will be applied prospectively for annual and interim periods in fiscal years beginning after December 15, 2019. The effects of this standard on our consolidated statement of financial position, results of operations or cash flows are not expected to be material.

 

Measurement of Credit Losses on Financial Instruments. 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 are currently in the implementation of our selected software and are in the process of model development and validation. Oriental will keep disclosing relevant information of concerning implementation process and impact of ASU No. 2016-13, as well as the updating of policies, procedures and internal controls, in preparation for performing a full parallel run during the third quarter of 2019. Oriental’s preliminary evaluation indicates the provisions of ASU No. 2016-13 are expected to impact Oriental’s consolidated financial statements, in particular the level of the reserve for credit losses. Oriental is continuing to evaluate the extent of the potential impact and expects that portfolio composition and economic conditions at the time of adoption will be a factor.

 

 

 

 

NOTE 2 SIGNIFICANT EVENTS

 

On June 26, 2019, Oriental entered into (i) a definitive Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of Nova Scotia (“BNS”), (ii) a definitive Sale and Purchase Agreement (USVI) (the “USVI Purchase Agreement”) with BNS and (iii) a definitive Sale and Purchase Agreement (PR) (the “PR Purchase Agreement” and, together with the Stock Purchase Agreement and the USVI Purchase Agreement, the “Purchase Agreements”) with BNS. This transaction is referred to as the “Scotiabank Transaction.”

 

Pursuant to the Stock Purchase Agreement, Oriental will acquire all of the issued and outstanding shares of common and preferred stock of Scotiabank de Puerto Rico, a bank chartered under the laws of Puerto Rico (“SBPR”). In addition, the Stock Purchase Agreement contemplates that, immediately following the closing, SBPR will merge with and into Oriental Bank, with Oriental Bank continuing as the surviving bank. Pursuant to the USVI Purchase Agreement, Oriental will acquire the banking operations of BNS in the U.S. Virgin Islands (“USVI”) through an acquisition of certain assets (including loans, ATMs and physical branch locations) and an assumption of certain liabilities (including deposits). Also, pursuant to the PR Purchase Agreement, Oriental agreed to acquire certain loans and other assets, and to assume certain deposits and other liabilities from the Puerto Rico branch of BNS. The unaudited consolidated financial statements do not contemplate the effect of the Scotiabank Transaction, which has not been consummated at June 30, 2019.

 

Closing of the Scotiabank Transaction is targeted for before year end 2019 and is subject to certain customary conditions, including the receipt of required regulatory approvals as described in the Purchase Agreements.

 

Under the Purchase Agreements, Oriental may be required to reimburse BNS for its reasonable and documented out-of-pocket transaction expenses not to exceed $2 million if the closing of the Scotiabank Transaction does not occur before one year after execution of the Purchase Agreements, subject to certain conditions. There can be no assurance as to when or whether the Scotiabank Transaction will be consummated and what amounts Oriental may be obligated to pay under the Scotiabank Transaction.

 

11 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

NOTE 3 – RESTRICTED CASH

 

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

 

   

June 30,

 

December 31,

 

2019

 

2018

 

(In thousands)

Cash pledged as collateral to other financial institutions to secure:

 

 

 

 

 

    Derivatives

$

-

 

$

1,980

    Obligations under agreement of loans sold with recourse

 

1,049

 

 

1,050

 

$

1,049

 

$

3,030

 

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

 

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

 

Oriental has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At June 30, 2019 and December 31, 2018, Oriental delivered as collateral cash amounting to approximately $1.0 million and $1.1 million, respectively.

 

The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits. The amount of those minimum average reserve balances for the week that covered June 30, 2019 was $208.3 million (December 31, 2018 - $211.6 million). At June 30, 2019 and December 31, 2018, the Bank complied with this requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

 

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 June 30, 2019 and December 31, 2018, money market instruments included as part of cash and cash equivalents amounted to $7.5 million and $4.9 million, respectively.

 

12 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

Investment Securities

 

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

 

  

June 30, 2019

 

 

 

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

$

694,431

 

$

1,277

 

$

5,352

 

$

690,356

 

2.19%

        GNMA certificates

 

93,126

 

 

1,228

 

 

7

 

 

94,347

 

2.84%

        CMOs issued by US government-sponsored agencies

 

59,238

 

 

-

 

 

608

 

 

58,630

 

1.90%

            Total mortgage-backed securities

 

846,795

 

 

2,505

 

 

5,967

 

 

843,333

 

2.24%

    Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

 

10,938

 

 

1

 

 

32

 

 

10,907

 

1.36%

        Obligations of US government-sponsored agencies

 

2,147

 

 

-

 

 

16

 

 

2,131

 

1.38%

        Other debt securities

 

1,031

 

 

31

 

 

-

 

 

1,062

 

2.97%

            Total investment securities

 

14,116

 

 

32

 

 

48

 

 

14,100

 

1.48%

               Total securities available for sale

$

860,911

 

$

2,537

 

$

6,015

 

$

857,433

 

2.23%

 

13 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

  

December 31, 2018

 

 

 

Gross

 

Gross

 

 

 

Weighted

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

Average

  

Cost

 

Gains

 

Losses

 

Value

 

Yield

 

(In thousands)

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

561,878

 

$

404

 

$

8,951

 

$

553,331

 

2.59%

        GNMA certificates

 

211,947

 

 

1,050

 

 

2,827

 

 

210,170

 

3.10%

        CMOs issued by US government-sponsored agencies

 

66,230

 

 

-

 

 

2,166

 

 

64,064

 

1.90%

            Total mortgage-backed securities

 

840,055

 

 

1,454

 

 

13,944

 

 

827,565

 

2.66%

    Investment securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        US Treasury securities

 

10,924

 

 

-

 

 

119

 

 

10,805

 

1.36%

        Obligations of US government-sponsored agencies

 

2,325

 

 

-

 

 

60

 

 

2,265

 

1.38%

        Other debt securities

 

1,207

 

 

15

 

 

-

 

 

1,222

 

2.99%

            Total investment securities

 

14,456

 

 

15

 

 

179

 

 

14,292

 

1.50%

                Total securities available-for-sale

$

854,511

 

$

1,469

 

$

14,123

 

$

841,857

 

2.64%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

424,740

 

$

-

 

$

14,387

 

$

410,353

 

2.07%

 

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

 

The amortized cost and fair value of Oriental’s investment securities at June 30, 2019, by contractual maturity, are shown in the next table. Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

June 30, 2019

  

Available-for-sale

 

Amortized Cost

 

Fair Value

 

(In thousands)

Mortgage-backed securities

 

 

 

 

 

    Due from 1 to 5 years

 

 

 

 

 

        FNMA and FHLMC certificates

$

2,509

 

$

2,536

            Total due from 1 to 5 years

 

2,509

 

 

2,536

    Due after 5 to 10 years

 

 

 

 

 

        CMOs issued by US government-sponsored agencies

$

52,094

 

$

51,538

        FNMA and FHLMC certificates

 

192,744

 

 

192,666

            Total due after 5 to 10 years

 

244,838

 

 

244,204

    Due after 10 years

 

 

 

 

 

        FNMA and FHLMC certificates

$

499,178

 

$

495,154

        GNMA certificates

 

93,126

 

 

94,347

        CMOs issued by US government-sponsored agencies

 

7,144

 

 

7,092

            Total due after 10 years

 

599,448

 

 

596,593

                Total  mortgage-backed securities

 

846,795

 

 

843,333

Investment securities

 

 

 

 

 

    Due less than one year

 

 

 

 

 

        US Treasury securities

$

10,938

 

$

10,907

            Total due in less than one year

 

10,938

 

 

10,907

    Due from 1 to 5 years

 

 

 

 

 

        Obligations of US government-sponsored agencies

$

2,147

 

$

2,131

        Other debt securities

 

100

 

 

100

            Total due from 1 to 5 years

 

2,247

 

 

2,231

    Due from 5 to 10 years

 

 

 

 

 

        Other debt securities

 

931

 

 

962

            Total due after 5 to 10 years

 

931

 

 

962

                Total  investment securities

 

14,116

 

 

14,100

Total

$

860,911

 

$

857,433

14 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

During the six-month period ended June 30, 2019, Oriental retained securitized GNMA pools totaling $25.7 million amortized cost, at a yield of 3.69% from its own originations while, during the six-month period ended June 30, 2018 that amount totaled $37.6 million amortized cost, at a yield of 3.45%.

 

During the quarter ended June 30, 2019 Oriental sold $349.7 million available-for-sale mortgage-backed securities and recognized a gain in the sale of $4.8 million. During the quarters ended June 30, 2019 and 2018 and the six-month period ended June 30, 2018, Oriental did not sell mortgage-backed securities or investment securities.

 

 

 

Six-Month Period Ended June 30, 2019

 

 

 

Book Value

 

 

 

 

Description

Sale Price

 

at Sale

 

Gross Gains

 

Gross Losses

 

(In thousands)

Sale of securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

    Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

        FNMA and FHLMC certificates

$

213,376

 

$

211,549

 

$

1,827

 

$

-

        GNMA certificates

$

141,125

 

$

138,177

 

$

2,949

 

$

-

Total

$

354,501

 

$

349,726

 

$

4,776

 

$

-

15 


OFG BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)