NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
OFG is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. OFG operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer and investment adviser, Oriental Financial Services LLC (“Oriental Financial Services”), an insurance agency, Oriental Insurance, LLC (“Oriental Insurance”), a captive reinsurance company organized under the laws of the Cayman Islands, OFG Reinsurance Ltd (“OFG Reinsurance”), and a retirement plan administrator, Oriental Pension Consultants, Inc. (“OPC”), and OFG Ventures LLC (“OFG Ventures”), which holds investments. Through these subsidiaries and their respective divisions, OFG provides a wide range of banking and financial services such as commercial, consumer and mortgage lending, leasing, auto loans, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.
Basis of Presentation
The accompanying unaudited consolidated financial statements of OFG have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of OFG on a consolidated basis, and all such adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Operating results for three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC and has recorded or disclosed those material events or transactions as described within the accompanying consolidated financial statements and notes.
New Accounting Updates Adopted in 2022
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU 2020-06 to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Our adoption of this standard did not have a material impact on our financial statements.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Lessors—Certain Leases with Variable Lease Payments. FASB ASC 842 – In July 2021, the FASB issued ASU 2021-05 to amend the lease classification requirements for lessors to align them with practice under ASC Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC paragraphs 842-10-25-2 through 25-3; and (2) The lessor would have otherwise recognized a day-one loss. When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Our adoption of this standard did not have a material impact on our financial statements.
New Accounting Updated Not Yet Adopted
Derivatives and Hedging (Topic 815) Fair Value Hedging—Portfolio Layer Method. In March 2022, the FASB issued ASU 2022-01 to allow non-prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedge. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted on any date on or after the issuance of this ASU for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption. OFG will adopt this guidance when it becomes effective and the impact on our financial statements is not expected to be material.
Financial Instruments—Credit Losses Troubled Debt Restructurings and Vintage Disclosures. In March 2022, the FASB issued ASU 2022-02 to address the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amend the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Entities are permitted to early adopt these amendments, including adoption in any interim period, provided that the amendments are adopted as of the beginning of the annual reporting period that includes the interim period of adoption. In addition, entities are permitted to elect to early adopt the amendments related to TDR accounting and related disclosure enhancements separately from the amendments related to the vintage disclosures. OFG is currently evaluating the impact on the consolidated financial statements upon adoption of this standard.
NOTE 2 – RESTRICTED CASH
OFG has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both March 31, 2022 and December 31, 2021, OFG delivered as collateral cash amounting to approximately $175 thousand.
The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits. The amount of those minimum average reserve balances for the week that covered March 31, 2022 was $481.3 million (December 31, 2021 - $456.5 million). At March 31, 2022 and December 31, 2021, 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 3 – INVESTMENT SECURITIES
Money Market Investments
OFG considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At March 31, 2022 and December 31, 2021, money market instruments included as part of cash and cash equivalents amounted to $5.6 million and $9.0 million, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Investment Securities
The amortized cost, gross unrealized gains and losses, fair value, weighted average yield and contractual maturities of the securities owned by OFG at March 31, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Weighted Average Yield |
| (In thousands) |
Available-for-sale | | | | | | | | | |
Mortgage-backed securities | | | | | | | | | |
FNMA and FHLMC certificates | | | | | | | | | |
| | | | | | | | | |
Due from 1 to 5 years | 2,020 | | | — | | | 5 | | | $ | 2,015 | | | 2.13 | % |
Due from 5 to 10 years | $ | 82,101 | | | $ | 2 | | | $ | 1,168 | | | $ | 80,935 | | | 1.94 | % |
Due after 10 years | 490,169 | | | — | | | 14,229 | | | $ | 475,940 | | | 2.25 | % |
Total FNMA and FHLMC certificates | 574,290 | | | 2 | | | 15,402 | | | 558,890 | | | 2.21 | % |
GNMA Securities | | | | | | | | | |
| | | | | | | | | |
Due from 1 to 5 years | 16,836 | | | — | | | 146 | | | 16,690 | | | 1.63 | % |
Due from 5 to 10 years | 16,470 | | | — | | | 327 | | | 16,143 | | | 1.88 | % |
Due after 10 years | 261,712 | | | 872 | | | 8,221 | | | 254,363 | | | 2.40 | % |
Total GNMA certificates | 295,018 | | | 872 | | | 8,694 | | | 287,196 | | | 2.32 | % |
CMOs issued by US government-sponsored agencies | | | | | | | | | |
| | | | | | | | | |
Due from 1 to 5 years | 1,523 | | | — | | | 24 | | | 1,499 | | | 1.70 | % |
Due from 5 to 10 years | 18,584 | | | — | | | 300 | | | 18,284 | | | 1.80 | % |
Due after 10 years | 1,325 | | | 1 | | | 4 | | | 1,322 | | | 4.53 | % |
Total CMOs issued by US government-sponsored agencies | 21,432 | | | 1 | | | 328 | | | 21,105 | | | 1.96 | % |
Total mortgage-backed securities | 890,740 | | | 875 | | | 24,424 | | | 867,191 | | | 2.24 | % |
Investment securities | | | | | | | | | |
US Treasury securities | | | | | | | | | |
Due less than 1 year | 10,735 | | | 28 | | | — | | | 10,763 | | | 1.49 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total US Treasury Securities | 10,735 | | | 28 | | | — | | | 10,763 | | | 1.49 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other debt securities | | | | | | | | | |
Due less than 1 year | 500 | | | — | | | — | | | 500 | | | 0.57 | % |
Due from 1 to 5 years | 1,823 | | | 61 | | | — | | | 1,884 | | | 5.46 | % |
| | | | | | | | | |
| | | | | | | | | |
Total Other debt securities | 2,323 | | | 61 | | | — | | | 2,384 | | | 4.41 | % |
Total investment securities | 13,058 | | | 89 | | | — | | | 13,147 | | | 2.01 | % |
Total securities available for sale | $ | 903,798 | | | $ | 964 | | | $ | 24,424 | | | $ | 880,338 | | | 2.24 | % |
| | | | | | | | | |
| March 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Weighted Average Yield |
| (In thousands) |
Held-to-maturity | | | | | | | | | |
Mortgage-backed securities | | | | | | | | | |
FNMA and FHLMC certificates | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Due after 10 years | $ | 359,806 | | | $ | — | | | $ | 29,837 | | | $ | 329,969 | | | 1.71 | % |
| | | | | | | | | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Weighted Average Yield |
| (In thousands) |
Available-for-sale | | | | | | | | | |
Mortgage-backed securities | | | | | | | | | |
FNMA and FHLMC certificates | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Due from 5 to 10 years | 90,560 | | | 2,502 | | | — | | | 93,062 | | | 1.94 | % |
Due after 10 years | 93,440 | | | — | | | 3,200 | | | 90,240 | | | 1.37 | % |
Total FNMA and FHLMC certificates | 184,000 | | | 2,502 | | | 3,200 | | | 183,302 | | | 1.65 | % |
GNMA Securities | | | | | | | | | |
| | | | | | | | | |
Due from 1 to 5 years | 10,536 | | | 233 | | | 1 | | | 10,768 | | | 1.66 | % |
Due from 5 to 10 years | 26,419 | | | 556 | | | — | | | 26,975 | | | 1.80 | % |
Due after 10 years | 244,106 | | | 6,927 | | | 198 | | | 250,835 | | | 2.40 | % |
Total GNMA certificates | 281,061 | | | 7,716 | | | 199 | | | 288,578 | | | 2.32 | % |
CMOs issued by US government-sponsored agencies | | | | | | | | | |
| | | | | | | | | |
Due from 1 to 5 years | 1,788 | | | 22 | | | — | | | 1,810 | | | 1.70 | % |
Due from 5 to 10 years | 20,705 | | | 299 | | | — | | | 21,004 | | | 1.81 | % |
Due after 10 years | 1,601 | | | 16 | | | 1 | | | 1,616 | | | 4.24 | % |
Total CMOs issued by US government-sponsored agencies | 24,094 | | | 337 | | | 1 | | | 24,430 | | | 1.96 | % |
Total mortgage-backed securities | 489,155 | | | 10,555 | | | 3,400 | | | 496,310 | | | 2.05 | % |
Investment securities | | | | | | | | | |
US Treasury securities | | | | | | | | | |
Due less than 1 year | 10,737 | | | 88 | | | — | | | 10,825 | | | 1.48 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total US Treasury Securities | 10,737 | | | 88 | | | — | | | 10,825 | | | 1.48 | % |
Obligations of US government-sponsored agencies | | | | | | | | | |
Due less than 1 year | 1,182 | | | 1 | | | — | | | 1,183 | | | 1.40 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total Obligations of US government-sponsored agencies | 1,182 | | | 1 | | | — | | | 1,183 | | | 1.40 | % |
Other debt securities | | | | | | | | | |
Due less than 1 year | 500 | | | — | | | — | | | 500 | | | 0.57 | % |
Due from 1 to 5 years | 1,847 | | | 48 | | | — | | | 1,895 | | | 5.43 | % |
| | | | | | | | | |
| | | | | | | | | |
Total Other debt securities | 2,347 | | | 48 | | | — | | | 2,395 | | | 4.39 | % |
Total investment securities | 14,266 | | | 137 | | | — | | | 14,403 | | | 1.95 | % |
Total securities available for sale | $ | 503,421 | | | $ | 10,692 | | | $ | 3,400 | | | $ | 510,713 | | | 2.05 | % |
| | | | | | | | | |
| | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Weighted Average Yield |
| (In thousands) |
Held-to-maturity | | | | | | | | | |
Mortgage-backed securities | | | | | | | | | |
FNMA and FHLMC certificates | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Due after 10 years | 367,507 | | | — | | | 3,854 | | | 363,653 | | | 1.71 | % |
| | | | | | | | | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Investment securities as of March 31, 2022 include $200.4 million pledged to secure government deposits, derivatives and regulatory collateral that the secured parties are not permitted to sell or repledge the collateral, of which $199.7 million serve as collateral for public funds. Investment securities as of December 31, 2021 include $145.6 million pledged to secure government deposits, derivatives and regulatory collateral that the secured parties are not permitted to sell or repledge the collateral, of which $143.8 million serve as collateral for public funds.
The weighted average yield on debt securities available-for-sale is based on amortized cost and does not give effect to changes in fair value. Weighted average yields on tax-exempt obligations have been computed on a fully taxable equivalent basis.
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.
At March 31, 2022 and December 31, 2021, most securities held by OFG are issued by U.S. government entities and agencies that have a zero-credit loss assumption.
At both March 31, 2022 and December 31, 2021, the Bank’s international banking entities held short-term US Treasury 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 without the prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (“OCFI”).
During the quarters ended March 31, 2022 and 2021, OFG retained securitized GNMA pools totaling $24.0 million and $30.0 million amortized cost, respectively, at a yield of 2.37% and 2.22%, from its own originations.
There were no sales of securities during the quarters ended March 31, 2022 and 2021.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table show OFG’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:
| | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| 12 months or more |
| Amortized Cost | | Unrealized Loss | | Fair Value |
| (In thousands) |
Securities available-for-sale | | | | | |
| | | | | |
FNMA and FHLMC certificates | 91,258 | | | 9,884 | | | 81,374 | |
GNMA certificates | 4,237 | | | 256 | | | 3,981 | |
| | | | | |
| $ | 95,495 | | | $ | 10,140 | | | $ | 85,355 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| March 31, 2022 |
| Less than 12 months |
| Amortized Cost | | Unrealized Loss | | Fair Value |
| (In thousands) |
Securities available-for-sale | | | | | |
CMOs issued by US Government-sponsored agencies | 20,744 | | | 328 | | | 20,416 | |
FNMA and FHLMC certificates | 481,614 | | | 5,518 | | | 476,096 | |
GNMA certificates | 273,405 | | | 8,438 | | | 264,967 | |
| | | | | |
| $ | 775,763 | | | $ | 14,284 | | | $ | 761,479 | |
Held-to-maturity | | | | | |
FNMA and FHLMC certificates | $ | 359,806 | | | $ | 29,837 | | | $ | 329,969 | |
| | | | | |
| March 31, 2022 |
| Total |
| Amortized Cost | | Unrealized Loss | | Fair Value |
| (In thousands) |
Securities available-for-sale | | | | | |
CMOs issued by US Government-sponsored agencies | 20,744 | | | 328 | | | 20,416 | |
FNMA and FHLMC certificates | 572,872 | | | 15,402 | | | 557,470 | |
GNMA certificates | 277,642 | | | 8,694 | | | 268,948 | |
| | | | | |
| $ | 871,258 | | | $ | 24,424 | | | $ | 846,834 | |
Held-to-maturity | | | | | |
FNMA and FHLMC certificates | $ | 359,806 | | | $ | 29,837 | | | $ | 329,969 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Less than 12 months |
| Amortized Cost | | Unrealized Loss | | Fair Value |
| (In thousands) |
Securities available-for-sale | | | | | |
CMOs issued by US Government-sponsored agencies | 500 | | | 1 | | | 499 | |
FNMA and FHLMC certificates | 93,440 | | | 3,200 | | | 90,240 | |
GNMA certificates | 5,022 | | | 199 | | | 4,823 | |
| | | | | |
| $ | 98,962 | | | $ | 3,400 | | | $ | 95,562 | |
Held-to-maturity | | | | | |
FNMA and FHLMC certificates | $ | 367,507 | | | $ | 3,854 | | | $ | 363,653 | |
OFG had no investment securities in a continuous loss position for 12 months or more at December 31, 2021.
NOTE 4 - LOANS
OFG’s loan portfolio is composed of four segments, commercial, mortgage, consumer, and auto loans and leases. Loans are further segregated into classes which OFG uses when assessing and monitoring the risk and performance of the portfolio. The composition of the amortized cost basis of OFG’s loan portfolio at March 31, 2022 and December 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Non-PCD | | PCD | | Total | | Non-PCD | | PCD | | Total |
| (In thousands) |
Commercial loans: | | | | | | | | | | | |
Commercial secured by real estate | $ | 925,644 | | | $ | 163,865 | | | $ | 1,089,509 | | | $ | 883,994 | | | $ | 176,186 | | | $ | 1,060,180 | |
Other commercial and industrial | 805,499 | | | 26,761 | | | 832,260 | | | 759,172 | | | 28,149 | | | 787,321 | |
Other commercial and industrial - Paycheck Protection Program (PPP Loans) | 53,277 | | | — | | | 53,277 | | | 86,889 | | | — | | | 86,889 | |
US commercial loans | 524,868 | | | — | | | 524,868 | | | 444,940 | | | — | | | 444,940 | |
| 2,309,288 | | | 190,626 | | | 2,499,914 | | | 2,174,995 | | | 204,335 | | | 2,379,330 | |
Mortgage | 704,277 | | | 1,144,364 | | | 1,848,641 | | | 718,848 | | | 1,188,423 | | | 1,907,271 | |
Consumer: | | | | | | | | | | | |
Personal loans | 395,656 | | | 478 | | | 396,134 | | | 346,859 | | | 546 | | | 347,405 | |
Credit lines | 13,920 | | | 355 | | | 14,275 | | | 14,775 | | | 370 | | | 15,145 | |
Credit cards | 45,145 | | | — | | | 45,145 | | | 46,795 | | | — | | | 46,795 | |
Overdraft | 238 | | | — | | | 238 | | | 330 | | | — | | | 330 | |
| 454,959 | | | 833 | | | 455,792 | | | 408,759 | | | 916 | | | 409,675 | |
Auto and leasing | 1,732,859 | | | 10,765 | | | 1,743,624 | | | 1,693,029 | | | 13,281 | | | 1,706,310 | |
| 5,201,383 | | | 1,346,588 | | | 6,547,971 | | | 4,995,631 | | | 1,406,955 | | | 6,402,586 | |
Allowance for credit losses | (137,344) | | | (19,731) | | | (157,075) | | | (132,065) | | | (23,872) | | | (155,937) | |
Total loans held for investment, net | 5,064,039 | | | 1,326,857 | | | 6,390,896 | | | 4,863,566 | | | 1,383,083 | | | 6,246,649 | |
Mortgage loans held for sale | 26,761 | | | — | | | 26,761 | | | 51,096 | | | — | | | 51,096 | |
Other loans held for sale | 31,473 | | | — | | | 31,473 | | | 31,566 | | | — | | | 31,566 | |
Total loans held for sale | 58,234 | | | — | | | 58,234 | | | 82,662 | | | — | | | 82,662 | |
Total loans, net | $ | 5,122,273 | | | $ | 1,326,857 | | | $ | 6,449,130 | | | $ | 4,946,228 | | | $ | 1,383,083 | | | $ | 6,329,311 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During quarter ended on March 31, 2022, OFG sold $21.9 million of past due mortgage loans held for sale. These mortgage loans were transferred to held for sale during the fourth quarter of 2021.
At March 31, 2022 and December 31, 2021, OFG had carrying balances of $86.1 million and $87.3 million, respectively, in loans held for investment granted to the Puerto Rico government, including its municipalities and public corporations, as part of the commercial loan segment. The Bank’s loans to the Puerto Rico government amounting to $86.1 million and $86.2 million at March 31, 2022 and December 31, 2021, respectively, are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities in current status. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. At December 31, 2021, total loan exposure to the Puerto Rico government included a $1.1 million acquired PCD loan granted to a public corporation classified as non-accrual, which was repaid during the quarter ended March 31, 2022.
The tables below present the aging of the amortized cost of loans held for investment at March 31, 2022 and December 31, 2021, by class of loans. Mortgage loans past due include $9.7 million and $14.5 million of delinquent loans in the GNMA buy-back option program at March 31, 2022 and December 31, 2021, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| 30-59 Days Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total Past Due | | Current | | Total Loans | | Loans 90+ Days Past Due and Still Accruing |
| (In thousands) |
Commercial | | | | | | | | | | | | | |
Commercial secured by real estate | $ | 612 | | | $ | 443 | | | $ | 12,494 | | | $ | 13,549 | | | $ | 912,095 | | | $ | 925,644 | | | $ | — | |
Other commercial and industrial | 1,189 | | | 356 | | | 966 | | | 2,511 | | | 856,265 | | | 858,776 | | | — | |
US commercial loans | — | | | — | | | — | | | — | | | 524,868 | | | 524,868 | | | — | |
| 1,801 | | | 799 | | | 13,460 | | | 16,060 | | | 2,293,228 | | | 2,309,288 | | | — | |
Mortgage | 5,835 | | | 7,943 | | | 34,883 | | | 48,661 | | | 655,616 | | | 704,277 | | | 2,099 | |
Consumer | | | | | | | | | | | | | |
Personal loans | 3,097 | | | 1,690 | | | 1,290 | | | 6,077 | | | 389,579 | | | 395,656 | | | — | |
Credit lines | 416 | | | 153 | | | 110 | | | 679 | | | 13,241 | | | 13,920 | | | — | |
Credit cards | 669 | | | 405 | | | 559 | | | 1,633 | | | 43,512 | | | 45,145 | | | — | |
Overdraft | 61 | | | — | | | — | | | 61 | | | 177 | | | 238 | | | — | |
| 4,243 | | | 2,248 | | | 1,959 | | | 8,450 | | | 446,509 | | | 454,959 | | | — | |
Auto and leasing | 54,635 | | | 24,856 | | | 12,364 | | | 91,855 | | | 1,641,004 | | | 1,732,859 | | | — | |
Total loans | $ | 66,514 | | | $ | 35,846 | | | $ | 62,666 | | | $ | 165,026 | | | $ | 5,036,357 | | | $ | 5,201,383 | | | $ | 2,099 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| 30-59 Day Past Due | | 60-89 Days Past Due | | 90+ Days Past Due | | Total Past Due | | Current | | Total Loans | | Loans 90+ Days Past Due and Still Accruing |
| (In thousands) |
Commercial | | | | | | | | | | | | | |
Commercial secured by real estate | $ | 2,210 | | | $ | 102 | | | $ | 8,446 | | | $ | 10,758 | | | $ | 873,236 | | | $ | 883,994 | | | $ | — | |
Other commercial and industrial | 1,886 | | | 538 | | | 946 | | | 3,370 | | | 842,691 | | | 846,061 | | | — | |
US commercial loans | — | | | — | | | — | | | — | | | 444,940 | | | 444,940 | | | — | |
| 4,096 | | | 640 | | | 9,392 | | | 14,128 | | | 2,160,867 | | | 2,174,995 | | | — | |
Mortgage | 8,704 | | | 7,855 | | | 43,468 | | | 60,027 | | | 658,821 | | | 718,848 | | | 2,346 | |
Consumer | | | | | | | | | | | | | |
Personal loans | 2,382 | | | 1,131 | | | 1,116 | | | 4,629 | | | 342,230 | | | 346,859 | | | — | |
Credit lines | 531 | | | 141 | | | 227 | | | 899 | | | 13,876 | | | 14,775 | | | — | |
Credit cards | 610 | | | 336 | | | 631 | | | 1,577 | | | 45,218 | | | 46,795 | | | — | |
Overdraft | 130 | | | 14 | | | — | | | 144 | | | 186 | | | 330 | | | — | |
| 3,653 | | | 1,622 | | | 1,974 | | | 7,249 | | | 401,510 | | | 408,759 | | | — | |
Auto and leasing | 60,038 | | | 30,234 | | | 13,461 | | | 103,733 | | | 1,589,296 | | | 1,693,029 | | | — | |
Total loans | $ | 76,491 | | | $ | 40,351 | | | $ | 68,295 | | | $ | 185,137 | | | $ | 4,810,494 | | | $ | 4,995,631 | | | $ | 2,346 | |
Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the tables above.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Non-accrual Loans
The following table presents the amortized cost basis of loans on nonaccrual status as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Non-accrual with Allowance for Credit Loss | | Non-accrual with no Allowance for Credit Loss | | Total | | Non-accrual with Allowance for Credit Loss | | Non-accrual with no Allowance for Credit Loss | | Total |
| (In thousands) |
Non-PCD: | | | | | | | | | | | |
Commercial | | | | | | | | | | | |
Commercial secured by real estate | $ | 15,703 | | | $ | 17,864 | | | $ | 33,567 | | | $ | 16,299 | | | $ | 19,538 | | | $ | 35,837 | |
Other commercial and industrial | 1,009 | | | 317 | | | 1,326 | | | 1,284 | | | 483 | | | 1,767 | |
| 16,712 | | | 18,181 | | | 34,893 | | | 17,583 | | | 20,021 | | | 37,604 | |
Mortgage | 22,642 | | | 3,562 | | | 26,204 | | | 16,428 | | | 12,840 | | | 29,268 | |
Consumer | | | | | | | | | | | |
Personal loans | 1,008 | | | 353 | | | 1,361 | | | 1,143 | | | 302 | | | 1,445 | |
Personal lines of credit | 110 | | | — | | | 110 | | | 226 | | | — | | | 226 | |
Credit cards | 559 | | | — | | | 559 | | | 632 | | | — | | | 632 | |
| 1,677 | | | 353 | | | 2,030 | | | 2,001 | | | 302 | | | 2,303 | |
Auto and leasing | 12,492 | | | 3 | | | 12,495 | | | 19,827 | | | 2 | | | 19,829 | |
Total | $ | 53,523 | | | $ | 22,099 | | | $ | 75,622 | | | $ | 55,839 | | | $ | 33,165 | | | $ | 89,004 | |
| | | | | | | | | | | |
PCD: | | | | | | | | | | | |
Commercial | | | | | | | | | | | |
Commercial secured by real estate | $ | 3,682 | | | $ | 7,155 | | | $ | 10,837 | | | $ | 5,205 | | | $ | 6,198 | | | $ | 11,403 | |
Other commercial and industrial | — | | | 40 | | | 40 | | | 1,102 | | | 40 | | | 1,142 | |
| 3,682 | | | 7,195 | | | 10,877 | | | 6,307 | | | 6,238 | | | 12,545 | |
Mortgage | 310 | | | — | | | 310 | | | 334 | | | — | | | 334 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 3,992 | | | $ | 7,195 | | | $ | 11,187 | | | $ | 6,641 | | | $ | 6,238 | | | $ | 12,879 | |
Total non-accrual loans | $ | 57,515 | | | $ | 29,294 | | | $ | 86,809 | | | $ | 62,480 | | | $ | 39,403 | | | $ | 101,883 | |
The determination of nonaccrual or accrual status of PCD loans is made at the pool level, not the individual loan level.
Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans.
At March 31, 2022 and December 31, 2021, loans whose terms have been extended and which were classified as troubled-debt restructurings that were not included in non-accrual loans amounted to $123.4 million and $125.9 million, respectively, as they were performing under their new terms.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Modifications
OFG offers various types of concessions when modifying a loan. Concessions made to the original contractual terms of the loan typically consists of the deferral of interest and/or principal payments due to deterioration in the borrowers' financial condition. In these cases, the principal balance on the TDR had matured and/or was in default at the time of restructure. The amount of outstanding commitments to lend additional funds to commercial borrowers whose terms have been modified in TDRs amounted to $3.4 million and $3.7 million at March 31, 2022 and December 31, 2021, respectively.
The following table presents the troubled-debt restructurings in all loan portfolios as of March 31, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Accruing | | Non-accruing | | Total | | Related Allowance | | Accruing | | Non-accruing | | Total | | Related Allowance |
| (In thousands) |
Commercial loans: | | | | | | | | | | | | | | | |
Commercial secured by real estate | $ | 6,505 | | | $ | 14,476 | | | $ | 20,981 | | | $ | 118 | | | $ | 10,981 | | | $ | 14,444 | | | $ | 25,425 | | | $ | 202 | |
Other commercial and industrial | 2,802 | | | 301 | | | 3,103 | | | 72 | | | 2,785 | | | 473 | | | 3,258 | | | 41 | |
| | | | | | | | | | | | | | | |
US commercial loans | 7,143 | | | — | | | 7,143 | | | 126 | | | 7,156 | | | — | | | 7,156 | | | 126 | |
| 16,450 | | | 14,777 | | | 31,227 | | | 316 | | | 20,922 | | | 14,917 | | | 35,839 | | | 369 | |
Mortgage | 103,962 | | | 9,572 | | | 113,534 | | | 3,685 | | | 101,487 | | | 9,475 | | | 110,962 | | | 3,867 | |
Consumer: | | | | | | | | | | | | | | | |
Personal loans | 2,874 | | | 71 | | | 2,945 | | | 141 | | | 3,275 | | | 139 | | | 3,414 | | | 159 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Auto and leasing | 141 | | | — | | | 141 | | | 5 | | | 203 | | | 8 | | | 211 | | | 11 | |
Total loans | $ | 123,427 | | | $ | 24,420 | | | $ | 147,847 | | | $ | 4,147 | | | $ | 125,887 | | | $ | 24,539 | | | $ | 150,426 | | | $ | 4,406 | |
| | | | | | | | | | | | | | | |
The following tables present the troubled-debt restructurings by loan portfolios and modification type as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Reduction in interest rate | | Maturity or term extension | | Combination of reduction in interest rate and extension of maturity | | Forbearance | | Total |
| (In thousands) |
Commercial loans: | | | | | | | | | |
Commercial secured by real estate | $ | 8,265 | | | $ | 1,160 | | | $ | 8,287 | | | $ | 3,269 | | | $ | 20,981 | |
Other commercial and industrial | 713 | | | 1,863 | | | 502 | | | 25 | | | 3,103 | |
| | | | | | | | | |
US commercial loans | 7,143 | | | — | | | — | | | — | | | 7,143 | |
| 16,121 | | | 3,023 | | | 8,789 | | | 3,294 | | | 31,227 | |
Mortgage | 37,810 | | | 6,918 | | | 34,739 | | | 34,067 | | | 113,534 | |
Consumer: | | | | | | | | | |
Personal loans | 1,280 | | | 265 | | | 1,237 | | | 163 | | | 2,945 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Auto and leasing | 46 | | | — | | | 26 | | | 69 | | | 141 | |
Total loans | $ | 55,257 | | | $ | 10,206 | | | $ | 44,791 | | | $ | 37,593 | | | $ | 147,847 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Reduction in interest rate | | Maturity or term extension | | Combination of reduction in interest rate and extension of maturity | | Forbearance | | Total |
| (In thousands) |
Commercial loans: | | | | | | | | | |
Commercial secured by real estate | $ | 8,461 | | | $ | 1,227 | | | $ | 12,401 | | | $ | 3,336 | | | $ | 25,425 | |
Other commercial and industrial | 723 | | | 1,985 | | | 522 | | | 28 | | | 3,258 | |
| | | | | | | | | |
US commercial loans | 7,156 | | | — | | | — | | | — | | | 7,156 | |
| 16,340 | | | 3,212 | | | 12,923 | | | 3,364 | | | 35,839 | |
Mortgage | 37,307 | | | 6,796 | | | 32,456 | | | 34,403 | | | 110,962 | |
Consumer: | | | | | | | | | |
Personal loans | 1,496 | | | 287 | | | 1,430 | | | 201 | | | 3,414 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Auto and leasing | 74 | | | — | | | 28 | | | 109 | | | 211 | |
Total loans | $ | 55,217 | | | $ | 10,295 | | | $ | 46,837 | | | $ | 38,077 | | | $ | 150,426 | |
TDRs disclosed above were not related to Covid-19 modifications. Section 4013 of CARES Act and the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" provided banks an option to elect to not account for certain loan modifications related to Covid-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019 and at the time of implementation of the modification program, and the borrowers meet other applicable criteria. At March 31, 2022 there were $10.7 million (December 31, 2021 - $28.0 million) of loans deferred from the Covid-19 pandemic that were not classified as a TDR, which consists of VA insured mortgage loans.
At March 31, 2022 and December 31, 2021, TDR mortgage loans include $44.4 million and $40.8 million, respectively, of government guaranteed loans (e.g. FHA/VA).
Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the TDR tables.
Loan modifications that are considered TDR loans completed during the quarters ended March 31, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended March 31, 2022 |
| Number of contracts | | Pre-Modification Outstanding Recorded Investment | | Pre-Modification Weighted Average Rate | | Pre-Modification Weighted Average Term (in Months) | | Post-Modification Outstanding Recorded Investment | | Post-Modification Weighted Average Rate | | Post-Modification Weighted Average Term (in Months) |
| (Dollars in thousands) |
Mortgage | 36 | | $ | 4,700 | | | 4.53 | % | | 274 | | $ | 4,863 | | | 3.47 | % | | 343 |
Commercial | 2 | | 895 | | | 5.60 | % | | 52 | | 752 | | | 4.37 | % | | 75 |
Consumer | 1 | | 13 | | | 18.20 | % | | 84 | | 13 | | | 10.95 | % | | 84 |
| | | | | | | | | | | | | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended March 31, 2021 |
| Number of contracts | | Pre-Modification Outstanding Recorded Investment | | Pre-Modification Weighted Average Rate | | Pre-Modification Weighted Average Term (in Months) | | Post-Modification Outstanding Recorded Investment | | Post-Modification Weighted Average Rate | | Post-Modification Weighted Average Term (in Months) |
| (Dollars in thousands) |
Mortgage | 26 | | 3,557 | | | 3.99 | % | | 300 | | 3,580 | | | 3.61 | % | | 333 |
Commercial | 2 | | 185 | | | 7.21 | % | | 58 | | 204 | | | 6.80 | % | | 58 |
Consumer | 2 | | 16 | | | 11.76 | % | | 54 | | 17 | | | 9.93 | % | | 63 |
Auto and leasing | 5 | | 82 | | | 6.81 | % | | 66 | | 82 | | | 9.81 | % | | 36 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | |
| |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table presents troubled-debt restructurings for which there was a payment default during the twelve-month periods ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Month Period Ended March 31, | | | | |
| 2022 | | 2021 | | |
| Number of Contracts | | Recorded Investment | | Number of Contracts | | Recorded Investment | | | | |
| (Dollars in thousands) | | | | |
Mortgage | 16 | | | $ | 1,888 | | | 13 | | | $ | 1,507 | | | | | |
| | | | | | | | | | | |
Consumer | 5 | | | $ | 71 | | | — | | | $ | — | | | | | |
Auto and leasing | 1 | | | $ | 10 | | | 10 | | | $ | 57 | | | | | |
As of March 31, 2022 and December 31, 2021, the recorded investment on residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure amounted to $14.9 million and $16.9 million, respectively. OFG commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent. Puerto Rico and the USVI require the foreclosure to be processed through the respective territory’s courts. Foreclosure timelines vary according to local law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediation, bankruptcy, court delays and title issues.
Collateral-dependent Loans
The table below present the amortized cost of collateral-dependent loans held for investment at March 31, 2022 and December 31, 2021, by class of loans.
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
Commercial loans: | | | |
Commercial secured by real estate | $ | 21,279 | | | $ | 10,233 | |
PCD loans, except for single pooled loans, are not included in the table above as their unit of account is the loan pool.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit Quality Indicators
OFG categorizes its loans into loan grades based on relevant information about the ability of borrowers to service their debt, such as economic conditions, portfolio risk characteristics, prior loss experience, and the results of periodic credit reviews of individual loans.
OFG uses the following definitions for loan grades:
Pass: Loans classified as “pass” have a well-defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.
Special Mention: Loans classified as “special mention” have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard: Loans classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as “doubtful” have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, questionable and improbable.
Loss: Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future.
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass loans.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of March 31, 2022 and based on the most recent analysis performed, the risk category of loans subject to risk rating by class of loans is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Total |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | |
| | (In thousands) |
Commercial: | | | | | | | | | | | | | | | | |
Commercial secured by real estate: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | $ | 85,540 | | | $ | 183,488 | | | $ | 127,605 | | | $ | 112,985 | | | $ | 77,970 | | | $ | 215,510 | | | $ | 32,923 | | | $ | 836,021 | |
Special Mention | | — | | | — | | | 968 | | | 32,309 | | | 4,468 | | | 8,980 | | | 664 | | | 47,389 | |
Substandard | | — | | | 8,878 | | | 10,391 | | | 173 | | | 1,146 | | | 17,253 | | | 3,740 | | | 41,581 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | 20 | | | 633 | | | 653 | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial secured by real estate | | 85,540 | | | 192,366 | | | 138,964 | | | 145,467 | | | 83,584 | | | 241,763 | | | 37,960 | | | 925,644 | |
Other commercial and industrial: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | 47,372 | | | 245,506 | | | 85,959 | | | 40,564 | | | 59,694 | | | 11,917 | | | 344,577 | | | 835,589 | |
Special Mention | | — | | | 231 | | | 40 | | | 7,748 | | | 2,008 | | | 3,452 | | | 6,288 | | | 19,767 | |
Substandard | | 12 | | | — | | | 348 | | | 179 | | | 572 | | | 100 | | | 2,160 | | | 3,371 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | 49 | | | 49 | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total other commercial and industrial: | | 47,384 | | | 245,737 | | | 86,347 | | | 48,491 | | | 62,274 | | | 15,469 | | | 353,074 | | | 858,776 | |
US commercial loans: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | 33,300 | | | 81,469 | | | 60,798 | | | 31,619 | | | 46,288 | | | — | | | 233,963 | | | 487,437 | |
Special Mention | | — | | | — | | | — | | | 1,527 | | | 19,135 | | | — | | | — | | | 20,662 | |
Substandard | | — | | | — | | | 7,143 | | | — | | | 9,626 | | | — | | | — | | | 16,769 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total US commercial loans: | | 33,300 | | | 81,469 | | | 67,941 | | | 33,146 | | | 75,049 | | | — | | | 233,963 | | | 524,868 | |
Total commercial loans | | $ | 166,224 | | | $ | 519,572 | | | $ | 293,252 | | | $ | 227,104 | | | $ | 220,907 | | | $ | 257,232 | | | $ | 624,997 | | | $ | 2,309,288 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2021 and based on the most recent analysis performed, the risk category of loans subject to risk rating by class of loans is as follows.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Total |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | |
| | (In thousands) |
Commercial: | | | | | | | | | | | | | | | | |
Commercial secured by real estate: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | $ | 183,820 | | | $ | 120,855 | | | $ | 114,208 | | | $ | 94,864 | | | $ | 52,439 | | | $ | 183,026 | | | $ | 45,178 | | | $ | 794,390 | |
Special Mention | | 654 | | | 628 | | | 32,578 | | | 4,581 | | | 4,053 | | | 5,102 | | | 643 | | | 48,239 | |
Substandard | | 8,415 | | | 10,694 | | | 58 | | | 849 | | | 1,357 | | | 17,555 | | | 1,671 | | | 40,599 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | 22 | | | 744 | | | 766 | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial secured by real estate | | 192,889 | | | 132,177 | | | 146,844 | | | 100,294 | | | 57,849 | | | 205,705 | | | 48,236 | | | 883,994 | |
Other commercial and industrial: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | 276,165 | | | 93,809 | | | 45,976 | | | 57,989 | | | 6,106 | | | 6,004 | | | 330,072 | | | 816,121 | |
Special Mention | | 78 | | | 23 | | | 8,076 | | | 2,213 | | | 3,525 | | | — | | | 13,642 | | | 27,557 | |
Substandard | | 112 | | | 48 | | | 155 | | | 394 | | | 81 | | | 28 | | | 1,513 | | | 2,331 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | 52 | | | 52 | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total other commercial and industrial: | | 276,355 | | | 93,880 | | | 54,207 | | | 60,596 | | | 9,712 | | | 6,032 | | | 345,279 | | | 846,061 | |
US commercial loans: | | | | | | | | | | | | | | | | |
Loan grade: | | | | | | | | | | | | | | | | |
Pass | | 85,394 | | | 61,098 | | | 41,924 | | | 47,179 | | | — | | | — | | | 171,928 | | | 407,523 | |
Special Mention | | — | | | — | | | 1,515 | | | 19,095 | | | — | | | — | | | — | | | 20,610 | |
Substandard | | — | | | 7,156 | | | — | | | 9,651 | | | — | | | — | | | — | | | 16,807 | |
Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Loss | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total US commercial loans: | | 85,394 | | | 68,254 | | | 43,439 | | | 75,925 | | | — | | | — | | | 171,928 | | | 444,940 | |
Total commercial loans | | $ | 554,638 | | | $ | 294,311 | | | $ | 244,490 | | | $ | 236,815 | | | $ | 67,561 | | | $ | 211,737 | | | $ | 565,443 | | | $ | 2,174,995 | |
At March 31, 2022 and December 31, 2021, the balance of revolving loans converted to term loans was $57.7 million and $37.5 million, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OFG considers the performance of the loan portfolio and its impact on the allowance for credit losses. For mortgage and consumer loan classes, OFG also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in mortgage and consumer loans based on payment activity as of March 31, 2022:
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| | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans Amortized Cost Basis | | Total |
| | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | | |
| | (In thousands) |
Mortgage: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | $ | 6,885 | | | $ | 26,893 | | | $ | 16,868 | | | $ | 14,755 | | | $ | 18,411 | | | $ | 583,692 | | | $ | — | | | $ | — | | | $ | 667,504 | |
Nonperforming | | — | | | — | | | 126 | | | 341 | | | 477 | | | 35,829 | | | — | | | — | | | 36,773 | |
Total mortgage loans: | | 6,885 | | | 26,893 | | | 16,994 | | | 15,096 | | | 18,888 | | | 619,521 | | | — | | | — | | | 704,277 | |
Consumer: | | | | | | | | | | | | | | | | | | |
Personal loans: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | 94,228 | | | 159,506 | | | 47,338 | | | 54,905 | | | 24,182 | | | 14,136 | | | — | | | — | | | 394,295 | |
Nonperforming | | 13 | | | 235 | | | 246 | | | 300 | | | 128 | | | 439 | | | — | | | — | | | 1,361 | |
Total personal loans | | 94,241 | | | 159,741 | | | 47,584 | | | 55,205 | | | 24,310 | | | 14,575 | | | — | | | — | | | 395,656 | |
Credit lines: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 13,810 | | | — | | | 13,810 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | 110 | | | — | | | 110 | |
Total credit lines | | — | | | — | | | — | | | — | | | — | | | — | | | 13,920 | | | — | | | 13,920 | |
Credit cards: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 44,586 | | | — | | | 44,586 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | 559 | | | — | | | 559 | |
Total credit cards | | — | | | — | | | — | | | — | | | — | | | — | | | 45,145 | | | — | | | 45,145 | |
Overdrafts: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 238 | | | — | | | 238 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total overdrafts | | — | | | — | | | — | | | — | | | — | | | — | | | 238 | | | — | | | 238 | |
Total consumer loans | | 94,241 | | | 159,741 | | | 47,584 | | | 55,205 | | | 24,310 | | | 14,575 | | | 59,303 | | | — | | | 454,959 | |
Total mortgage and consumer loans | | $ | 101,126 | | | $ | 186,634 | | | $ | 64,578 | | | $ | 70,301 | | | $ | 43,198 | | | $ | 634,096 | | | $ | 59,303 | | | $ | — | | | $ | 1,159,236 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the amortized cost in mortgage and consumer loans based on payment activity as of December 31, 2021:
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| | Term Loans Amortized Cost Basis by Origination Year | | Revolving Loans Amortized Cost Basis | | Revolving Loans Converted to Term Loans Amortized Cost Basis | | Total |
| | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | | |
| | (In thousands) |
Mortgage: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | $ | 18,486 | | | $ | 16,585 | | | $ | 15,461 | | | $ | 19,261 | | | $ | 24,872 | | | $ | 584,792 | | | $ | — | | | $ | — | | | $ | 679,457 | |
Nonperforming | | — | | | 126 | | | 129 | | | 510 | | | 1,830 | | | 36,796 | | | — | | | — | | | 39,391 | |
Total mortgage loans: | | 18,486 | | | 16,711 | | | 15,590 | | | 19,771 | | | 26,702 | | | 621,588 | | | — | | | — | | | 718,848 | |
Consumer: | | | | | | | | | | | | | | | | | | |
Personal loans: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | 175,273 | | | 55,960 | | | 65,425 | | | 29,808 | | | 12,287 | | | 6,661 | | | — | | | — | | | 345,414 | |
Nonperforming | | 296 | | | 239 | | | 411 | | | 143 | | | 20 | | | 336 | | | — | | | — | | | 1,445 | |
Total personal loans | | 175,569 | | | 56,199 | | | 65,836 | | | 29,951 | | | 12,307 | | | 6,997 | | | — | | | — | | | 346,859 | |
Credit lines: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 14,549 | | | — | | | 14,549 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | 226 | | | — | | | 226 | |
Total credit lines | | — | | | — | | | — | | | — | | | — | | | — | | | 14,775 | | | — | | | 14,775 | |
Credit cards: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 46,163 | | | — | | | 46,163 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | 632 | | | — | | | 632 | |
Total credit cards | | — | | | — | | | — | | | — | | | — | | | — | | | 46,795 | | | — | | | 46,795 | |
Overdrafts: | | | | | | | | | | | | | | | | | | |
Payment performance: | | | | | | | | | | | | | | | | | | |
Performing | | — | | | — | | | — | | | — | | | — | | | — | | | 330 | | | — | | | 330 | |
Nonperforming | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total overdrafts | | — | | | — | | | — | | | — | | | — | | | — | | | 330 | | | — | | | 330 | |
Total consumer loans | | 175,569 | | | 56,199 | | | 65,836 | | | 29,951 | | | 12,307 | | | 6,997 | | | 61,900 | | | — | | | 408,759 | |
Total mortgage and consumer loans | | $ | 194,055 | | | $ | 72,910 | | | $ | 81,426 | | | $ | 49,722 | | | $ | 39,009 | | | $ | 628,585 | | | $ | 61,900 | | | $ | — | | | $ | 1,127,607 | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OFG evaluates credit quality for auto loans and leases based on FICO score. The following table presents the amortized cost in auto loans and leases based on their most recent FICO score as of March 31, 2022:
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| Term Loans Amortized Cost Basis by Origination Year | | Total |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | |
| (In thousands) |
Auto and leasing: | | | | | | | | | | | | | |
FICO score: | | | | | | | | | | | | | |
1-660 | 33,276 | | | 165,264 | | | 85,758 | | | 74,524 | | | 59,447 | | | 52,034 | | | 470,303 | |
661-699 | 33,282 | | | 134,368 | | | 59,373 | | | 42,517 | | | 29,540 | | | 23,202 | | | 322,282 | |
700+ | 70,521 | | | 248,563 | | | 170,553 | | | 169,596 | | | 120,474 | | | 85,393 | | | 865,100 | |
No FICO | 7,383 | | | 23,139 | | | 12,669 | | | 15,432 | | | 9,133 | | | 7,418 | | | 75,174 | |
Total auto and leasing: | $ | 144,462 | | | $ | 571,334 | | | $ | 328,353 | | | $ | 302,069 | | | $ | 218,594 | | | $ | 168,047 | | | $ | 1,732,859 | |
The following table presents the amortized cost in auto loans and leases based on their most recent FICO score as of December 31, 2021:
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| Term Loans Amortized Cost Basis by Origination Year | | Total |
| 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | |
| (In thousands) |
Auto and leasing: | | | | | | | | | | | | | |
FICO score: | | | | | | | | | | | | | |
1-660 | 161,534 | | | 90,402 | | | 80,745 | | | 65,681 | | | 38,001 | | | 23,171 | | | 459,534 | |
661-699 | 134,507 | | | 68,422 | | | 48,173 | | | 33,854 | | | 16,761 | | | 10,534 | | | 312,251 | |
700+ | 245,148 | | | 180,737 | | | 184,307 | | | 133,098 | | | 63,229 | | | 38,474 | | | 844,993 | |
No FICO | 26,759 | | | 13,580 | | | 17,062 | | | 10,119 | | | 5,515 | | | 3,216 | | | 76,251 | |
Total auto and leasing: | $ | 567,948 | | | $ | 353,141 | | | $ | 330,287 | | | $ | 242,752 | | | $ | 123,506 | | | $ | 75,395 | | | $ | 1,693,029 | |
Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the tables above.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 5 – ALLOWANCE FOR CREDIT LOSSES
On January 1, 2020, OFG adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in OFG’s relevant financial assets.
The allowance for credit losses (“ACL”) is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. Also included in the ACL are qualitative reserves to cover losses that are expected but, in OFG’s assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, OFG incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends.
At March 31, 2022, OFG used an economic probability weighted scenario approach which consist of the baseline and moderate recession scenarios, giving more weight to the baseline scenario. In addition, the ACL at March 31, 2022 continues to include qualitative reserves for certain segments that OFG views as higher risk that may not be fully recognized through its quantitative models such as commercial loans concentrated in certain industries and consumer retail portfolios. There are still many unknowns including the duration of the impact of Covid-19 on the economy and the results of the government fiscal and monetary actions resulting from the effect of inflation. Also, geopolitical tension resulted from the military conflict between Ukraine and Russia will put more pressure on inflation due to disruption to oil, natural gas and other commodity markets.
As of March 31, 2022, the allowance for credit losses increased by $1.1 million when compared to December 31, 2021. The provision for credit losses for the quarter ended March 31, 2022 includes a provision of $4.0 million related to growth in loan balances, an increase of $4.2 million related to a commercial loan previously placed in non-accrual status, and a decrease of $5.7 million associated with qualitative adjustment due to improvement in the performance of the portfolios and in the labor market of the island. The provision for credit losses for the quarter ended March 31, 2021 included a $3.7 million release of Covid-19-related loan reserves and a $3.5 million provision for a commercial loan in workout prior to the pandemic.
The following tables present the activity in OFG’s allowance for credit losses by segment for the quarters ended March 31, 2022 and 2021:
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| Quarter Ended March 31, 2022 |
| Commercial | | Mortgage | | Consumer | | Auto and Leasing | | Total |
| (In thousands) |
Non-PCD: | | | | | | | | | |
Balance at beginning of period | $ | 32,262 | | | $ | 15,299 | | | $ | 19,141 | | | $ | 65,363 | | | $ | 132,065 | |
Provision for (recapture of) credit losses | 5,187 | | | (2,418) | | | 3,963 | | | 1,831 | | | 8,563 | |
Charge-offs | (544) | | | (3) | | | (2,659) | | | (7,890) | | | (11,096) | |
Recoveries | 192 | | | 2,074 | | | 655 | | | 4,891 | | | 7,812 | |
Balance at end of period | $ | 37,097 | | | $ | 14,952 | | | $ | 21,100 | | | $ | 64,195 | | | $ | 137,344 | |
PCD: | | | | | | | | | |
Balance at beginning of period | $ | 4,508 | | | $ | 19,018 | | | $ | 34 | | | $ | 312 | | | $ | 23,872 | |
(Recapture of) provision for credit losses | (3,875) | | | (2,848) | | | 13 | | | (138) | | | (6,848) | |
Charge-offs | (34) | | | (1,134) | | | (39) | | | (114) | | | (1,321) | |
Recoveries | 3,023 | | | 845 | | | 23 | | | 137 | | | 4,028 | |
Balance at end of period | $ | 3,622 | | | $ | 15,881 | | | $ | 31 | | | $ | 197 | | | $ | 19,731 | |
Total allowance for credit losses at end of period | $ | 40,719 | | | $ | 30,833 | | | $ | 21,131 | | | $ | 64,392 | | | $ | 157,075 | |
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Total recoveries for the first quarter of 2022 includes a $2.8 million recovery from a Puerto Rico government public corporation acquired PCD commercial loan repaid during the quarter and $1.1 million recoveries associated with the final
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
settlement of the past due mortgage loans transferred to held for sale during the fourth quarter of 2021 and subsequently sold during the first quarter of 2022.
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| Quarter Ended March 31, 2021 |
| Commercial | | Mortgage | | Consumer | | Auto and Leasing | | Total |
| (In thousands) |
Non-PCD: | | | | | | | | | |
Balance at beginning of period | $ | 45,779 | | | $ | 19,687 | | | $ | 25,253 | | | $ | 70,296 | | | $ | 161,015 | |
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Provision for (recapture of) credit losses | 1,542 | | | (2,480) | | | (158) | | | 4,039 | | | 2,943 | |
Charge-offs | (68) | | | (787) | | | (4,469) | | | (9,083) | | | (14,407) | |
Recoveries | 430 | | | 615 | | | 565 | | | 5,817 | | | 7,427 | |
Balance at end of period | $ | 47,683 | | | $ | 17,035 | | | $ | 21,191 | | | $ | 71,069 | | | $ | 156,978 | |
PCD: | | | | | | | | | |
Balance at beginning of period | $ | 16,405 | | | $ | 26,389 | | | $ | 57 | | | $ | 943 | | | $ | 43,794 | |
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(Recapture of) provision for credit losses | (2,492) | | | 5,994 | | | (4) | | | (172) | | | 3,326 | |
Charge-offs | (43) | | | (2,590) | | | (22) | | | (456) | | | (3,111) | |
Recoveries | 436 | | | 146 | | | 21 | | | 383 | | | 986 | |
Balance at end of period | $ | 14,306 | | | $ | 29,939 | | | $ | 52 | | | $ | 698 | | | $ | 44,995 | |
Total allowance for credit losses at end of period | $ | 61,989 | | | $ | 46,974 | | | $ | 21,243 | | | $ | 71,767 | | | $ | 201,973 | |
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NOTE 6 — FORECLOSED REAL ESTATE
The following tables present the activity related to foreclosed real estate for the quarters ended March 31, 2022 and 2021:
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| Quarter ended March 31, | | | | | |
| 2022 | | 2021 | | | | | |
| (In thousands) | |
Balance at beginning of period | $ | 15,039 | | | $ | 11,596 | | | | | | |
Additions | 3,180 | | | 6,637 | | | | | | |
Sales | (3,807) | | | (2,423) | | | | | | |
Decline in value | (195) | | | (89) | | | | | | |
Other adjustments | 1,080 | | | (123) | | | | | | |
Balance at end of period | $ | 15,297 | | | $ | 15,598 | | | | | | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 7 - SERVICING ASSETS
At March 31, 2022, the fair value of mortgage servicing rights was $49.4 million ($49.0 million — December 31, 2021).
The following table presents the changes in servicing rights measured using the fair value method for the quarters ended March 31, 2022 and 2021:
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| Quarter ended March 31, | | |
| 2022 | | 2021 | | | | | | |
| | | | | |
Fair value at beginning of period | $ | 48,973 | | | $ | 47,295 | | | | | | | |
Servicing from mortgage securitization or asset transfers | 1,119 | | | 1,420 | | | | | | | |
Changes due to payments on loans | (1,499) | | | (1,507) | | | | | | | |
Changes in fair value due to changes in valuation model inputs or assumptions | 853 | | | 703 | | | | | | | |
Fair value at end of period | $ | 49,446 | | | $ | 47,911 | | | | | | | |
The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value for the quarters ended March 31, 2022 and 2021:
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| Quarter Ended March 31, | | |
| 2022 | | 2021 | | |
Constant prepayment rate | 3.88% - 24.30% | | 4.50% - 40.50% | | |
Discount rate | 10.00% - 15.50% | | 10.00% - 15.50% | | |
The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:
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| March 31, 2022 |
| (In thousands) |
Mortgage-related servicing asset | |
Carrying value of mortgage servicing asset | $ | 49,446 | |
Constant prepayment rate | |
Decrease in fair value due to 10% adverse change | $ | (924) | |
Decrease in fair value due to 20% adverse change | $ | (1,819) | |
Discount rate | |
Decrease in fair value due to 10% adverse change | $ | (2,276) | |
Decrease in fair value due to 20% adverse change | $ | (4,373) | |
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.
Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.
Servicing fee income is based on a contractual percentage of the outstanding principal balance and is recorded as income when earned. Servicing fees on mortgage loans for the quarters ended March 31, 2022 and 2021 totaled $5.0 million and $5.2 million, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 8 — DERIVATIVES
OFG’s overall interest rate risk-management strategy incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Derivative instruments that are used as part of OFG’s interest rate risk-management strategy include interest rate swaps and caps.
As of March 31, 2022 and December 31, 2021, the notional amount of derivative contracts outstanding was $28.0 million and $28.5 million respectively. The gross fair value of derivative asset was $6 thousand and $1 thousand, respectively, and the gross fair value of derivatives liabilities were $191 thousand and $804 thousand, respectively. The impact of master netting agreements was not material. As of March 31, 2022 and December 31, 2021, derivative and hedging activities were not material.
NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS
As of March 31, 2022 and December 31, 2021, OFG had $86.1 million of goodwill allocated as follows: $84.1 million to the banking segment and $2.0 million to the wealth management segment (refer to Note 23 – Business Segments for the definition of OFG’s reportable business segments). There were no changes in the carrying amount of goodwill for the quarters ended March 31, 2022 and 2021.
Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting segment is less than its carrying amount may include macroeconomic conditions (such as deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, natural disasters, or similar events.
OFG performed its annual impairment review of goodwill during the fourth quarter of 2021 using October 31, 2021 as the annual evaluation date and concluded that there was no impairment at December 31, 2021. There were no additional events that caused OFG to perform interim testing during the quarter ended March 31, 2022.
The following table reflects the components of other intangible assets subject to amortization at March 31, 2022 and 2021:
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| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Value |
| | (In thousands) |
March 31, 2022 | | | | | | |
Core deposit intangibles | | $ | 51,402 | | | $ | 25,410 | | | $ | 25,992 | |
Customer relationship intangibles | | 17,753 | | | 9,869 | | | 7,884 | |
Other intangibles | | 567 | | | 496 | | | 71 | |
Total other intangible assets | | $ | 69,722 | | | $ | 35,775 | | | $ | 33,947 | |
December 31, 2021 | | | | | | |
Core deposit intangibles | | $ | 51,402 | | | $ | 23,772 | | | $ | 27,630 | |
Customer relationship intangibles | | 17,753 | | | 9,385 | | | 8,368 | |
Other intangibles | | 567 | | | 472 | | | 95 | |
Total other intangible assets | | $ | 69,722 | | | $ | 33,629 | | | $ | 36,093 | |
In connection with previous acquisitions, OFG recorded a core deposit intangible representing the value of checking and savings deposits acquired. In addition, OFG recorded a customer relationship intangible representing the value of customer relationships acquired with the acquisitions of a securities broker-dealer and insurance agencies.
Other intangible assets have a definite useful life. Amortization of other intangible assets for the quarters ended March 31, 2022 and 2021 was $2.1 million and $2.5 million, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents the estimated amortization of other intangible assets for each of the following periods.
| | | | | | | | |
Year Ending December 31, | | (In thousands) |
2022 | | $ | 8,501 | |
2023 | | 6,898 | |
2024 | | 5,913 | |
2025 | | 4,927 | |
2026 | | 3,942 | |
Thereafter | | 5,912 | |
NOTE 10 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Accrued interest receivable at March 31, 2022 and December 31, 2021 consists of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Loans | $ | 53,427 | | | $ | 54,794 | |
Investments | 2,670 | | | 1,766 | |
| $ | 56,097 | | | $ | 56,560 | |
Accrued interest receivable on loans that participated in the Covid-19 deferral programs amounted to $23.6 million at March 31, 2022 (December 31, 2021 - $23.9 million), of which $21.8 million (December 31, 2021 - $21.5 million) corresponds to loans in current status. OFG estimates expected credit losses on accrued interest receivable for loans that participated in the Covid-19 deferral programs. An allowance has been established for loans with delinquency status in 30 to 89 days past due and is calculated by applying the corresponding loan projected loss factors to the accrued interest receivable balance. At March 31, 2022 and December 31, 2021, the allowance for credit losses for accrued interest receivable for loans that participated in the Covid-19 deferral programs amounted to $146 thousand and $161 thousand, respectively, and is included in accrued interest receivable in the statement of financial condition.
Other assets at March 31, 2022 and December 31, 2021 consist of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Prepaid expenses | $ | 56,931 | | | $ | 61,061 | |
Other repossessed assets | 2,625 | | | 1,945 | |
Investment in Statutory Trust | — | | | 1,083 | |
Accounts receivable and other assets | 82,686 | | | 88,756 | |
| $ | 142,242 | | | $ | 152,845 | |
Prepaid expenses amounting to $56.9 million at March 31, 2022, include prepaid municipal, property and income taxes aggregating to $51.5 million. At December 31, 2021 prepaid expenses amounted to $61.1 million, including prepaid municipal, property and income taxes aggregating to $54.6 million.
Other repossessed assets totaled $2.6 million and $1.9 million at March 31, 2022 and December 31, 2021, respectively, that consist mainly of repossessed automobiles, which are recorded at their net realizable value.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 11— DEPOSITS AND RELATED INTEREST
Total deposits, including related accrued interest payable, as of March 31, 2022 and December 31, 2021 consist of the following:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Non-interest bearing demand deposits | $ | 2,667,508 | | | $ | 2,501,644 | |
Interest-bearing savings and demand deposits | 5,132,245 | | | 4,880,476 | |
Retail certificates of deposit | 966,567 | | | 1,007,577 | |
Institutional certificates of deposit | 200,536 | | | 202,050 | |
Total core deposits | 8,966,856 | | | 8,591,747 | |
Brokered deposits | 11,366 | | | 11,371 | |
Total deposits | $ | 8,978,222 | | | $ | 8,603,118 | |
At March 31, 2022 and December 31, 2021, the aggregate amount of uninsured deposits was $3.626 billion and $3.270 billion, respectively.
The weighted average interest rate of OFG’s deposits was 0.35% and 0.49%, respectively, at March 31, 2022 and December 31, 2021. Interest expense for the quarters ended March 31, 2022 and 2021 was as follows:
| | | | | | | | | | | | | | | | |
| Quarter Ended March 31, | |
| 2022 | | 2021 | | | | | |
| | | | |
Demand and savings deposits | $ | 4,976 | | | $ | 6,371 | | | | | | |
Certificates of deposit | 2,065 | | | 5,653 | | | | | | |
| $ | 7,041 | | | $ | 12,024 | | | | | | |
At March 31, 2022 and December 31, 2021, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $340.3 million and $360.8 million, respectively.
At March 31, 2022 and December 31, 2021, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $248.3 million and $183.8 million, respectively. These public funds were collateralized with commercial loans and securities amounting to $284.9 million and $228.9 million at March 31, 2022 and December 31, 2021, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Excluding accrued interest of approximately $578 thousand and $736 thousand, the scheduled maturities of certificates of deposit at March 31, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | |
March 31, 2022 | |
| Period-end amount | | Uninsured amount |
| (In thousands) |
Within one year: | | | |
Three months or less | $ | 245,840 | | | $ | 19,710 | |
Over 3 months through 6 months | 149,348 | | | 28,222 | |
Over 6 months through 1 year | 257,661 | | | 47,713 | |
| 652,849 | | | 95,645 | |
Over 1 through 2 years | 278,011 | | | 40,392 | |
Over 2 through 3 years | 118,924 | | | 18,440 | |
Over 3 through 4 years | 75,209 | | | 24,046 | |
Over 4 through 5 years | 51,546 | | | 5,805 | |
Over 5 years | 1,352 | | | — | |
| $ | 1,177,891 | | | $ | 184,328 | |
| | | |
December 31, 2021 | | | |
| Period-end amount | | Uninsured amount |
| (In thousands) |
| | | |
Within one year: | | | |
Three months or less | $ | 252,513 | | | 25,003 | |
Over 3 months through 6 months | 147,400 | | | 12,113 | |
Over 6 months through 1 year | 239,830 | | | 45,280 | |
| 639,743 | | | 82,396 | |
Over 1 through 2 years | 328,177 | | | 60,108 | |
Over 2 through 3 years | 114,403 | | | 18,578 | |
Over 3 through 4 years | 77,604 | | | 22,536 | |
Over 4 through 5 years | 58,918 | | | 8505 |
Over 5 years | 1,417 | | | — | |
| $ | 1,220,262 | | | $ | 192,123 | |
The table of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.
The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $392 thousand and $491 thousand as of March 31, 2022 and December 31, 2021, respectively.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 12— BORROWINGS AND RELATED INTEREST
Advances from the Federal Home Loan Bank of New York
Advances are received from the FHLB-NY under an agreement whereby OFG is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At March 31, 2022 and December 31, 2021, these advances were secured by mortgage and commercial loans amounting to $910.7 million and $949.0 million, respectively. Also, at March 31, 2022 and December 31, 2021, OFG had an additional borrowing capacity with the FHLB-NY of $664.3 million and $697.3 million, respectively. At March 31, 2022 and December 31, 2021, the weighted average remaining maturity of FHLB’s advances was 1 and 3 days, respectively. The original term of the outstanding advance at March 31, 2022 is 1 month.
The following table shows a summary of the advances and their terms, excluding accrued interest in the amount of $13 thousand and $8 thousand at March 31, 2022 and December 31, 2021, respectively:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 0.33% (December 31, 2021 - 0.35%) | $ | 28,022 | | | $ | 28,480 | |
| | | |
| | | |
Advances from FHLB mature as follows:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Under 90 days | $ | 28,022 | | | $ | 28,480 | |
| | | |
| | | |
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| | | |
Subordinated Capital Notes
In August 2003, the Statutory Trust II, a special purpose entity of OFG, was formed for the purpose of issuing trust redeemable preferred securities. In September 2003, $35.0 million of trust redeemable preferred securities were issued by the Statutory Trust II as part of a pooled underwriting transaction.
The proceeds from this issuance were used by the Statutory Trust II to purchase a like amount of a floating rate junior subordinated deferrable interest debenture issued by OFG with a par value of $36.1 million.
During the quarter ended March 31, 2022, OFG redeemed of all outstanding $36.1 million subordinated capital notes before maturity, and as a result, it wrote off $405 thousand in unamortized issuance costs, included as interest expense in the consolidated statements of operations. OFG also recorded a gain on early debt extinguishment of $42 thousand included in other non-interest income in the consolidated statements of operations. Prior to redemption, such subordinated capital notes carried an interest rate of 3.23% based on 3-month LIBOR plus 295 basis points and were schedule to mature on September 17, 2033.
At December 31, 2021, the $35.0 million trust redeemable preferred securities were treated as Tier 1 capital for regulatory purposes. Under the Dodd-Frank Act and the Basel III capital rules issued by the federal banking regulatory agencies in July 2013, bank holding companies are prohibited from including in their tier 1 capital hybrid debt and equity securities, including trust preferred securities, issued on or after May 19, 2010. Any such instruments issued before May 19, 2010 by a bank holding company, such as OFG, with total consolidated assets of less than $15 billion as of December 31, 2009, could continue to be included as tier 1 capital.
NOTE 13 — INCOME TAXES
Oriental is subject to the dispositions of the PR Code. For 2022, the PR Code imposed a maximum statutory corporate tax rate of 37.5%. OFG has operations in the U.S. through its wholly owned subsidiary OPC, a retirement plan administration based in Florida. In October 2017, OFG expanded its operations in the United States through the Bank’s wholly owned
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
subsidiary, OFG USA. In March 2019, OFG incorporated in Delaware OFG Ventures, a limited liability company, which will hold new investments; and, on December 31, 2019, OFG established new branches in USVI acquired as a result of the Scotiabank Acquisition. The United States subsidiaries are subject to federal income taxes at the corporate level, while the USVI branches are subject to the federal income taxes under a mirror system and a 10% surtax included in the maximum tax rate. OPC is subject to Florida state taxes, OFG USA is subject to North Carolina state taxes, and current investments in OFG Ventures are subject to state taxes in Missouri. In addition, during 2021, OFG incorporated in Grand Cayman, as a foreign wholly owned subsidiary, OFG Reinsurance. OFG Reinsurance is tax exempt in Grand Cayman.
As of March 31, 2022 and December 31, 2021, OFG’s net deferred tax asset, net of a valuation allowance of $10.1 million and $9.6 million, respectively, amounted to $87.6 million and $99.1 million, respectively. The increase in valuation allowance of $420 thousand was mainly related to OFG holding company's operations. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. Based upon the assessment of positive and negative evidence, the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax asset are deductible, and provisions of certain closing agreements, management believes it is more likely than not that OFG will realize the benefits of these deductible differences, net of the existing valuation allowances, at March 31, 2022. The amount of the deferred tax asset that is considered realizable could be reduced in the near term if there are changes in estimates of future taxable income.
OFG maintained an effective tax rate lower than the statutory rate for the quarters ended March 31, 2022 and 2021 of 30.60% and 31.90%, respectively; the decrease is mainly related to discrete tax windfall on stock options recognized during the quarter ended March 31, 2022. The expected effective tax rate for the year 2022 is 32.40%.
OFG classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At March 31, 2022, the amount of unrecognized tax benefits was $815 thousand (December 31, 2021 - $798 thousand).
Income tax expense for the quarters ended March 31, 2022 and 2021 was $16.6 million and $14.2 million, respectively.
NOTE 14 — REGULATORY CAPITAL REQUIREMENTS
Regulatory Capital Requirements
OFG (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on OFG’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, OFG and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
As of March 31, 2022 and December 31, 2021, OFG and the Bank met all capital adequacy requirements to which they are subject. As of March 31, 2022 and December 31, 2021, OFG and the Bank are “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the tables presented below.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
OFG’s and the Bank’s actual capital amounts and ratios as of March 31, 2022 and December 31, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Requirement (including capital conservation buffer) | | Minimum to be Well Capitalized |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| (Dollars in thousands) |
OFG Bancorp Ratios | | | | | | | | | | | |
As of March 31, 2022 | | | | | | | | | | | |
Total capital to risk-weighted assets | $ | 1,045,437 | | | 14.49 | % | | $ | 757,543 | | | 10.50 | % | | $ | 721,469 | | | 10.00 | % |
Tier 1 capital to risk-weighted assets | $ | 955,221 | | | 13.24 | % | | $ | 613,249 | | | 8.50 | % | | $ | 577,175 | | | 8.00 | % |
Common equity tier 1 capital to risk-weighted assets | $ | 955,221 | | | 13.24 | % | | $ | 505,028 | | | 7.00 | % | | $ | 468,955 | | | 6.50 | % |
Tier 1 capital to average total assets | $ | 955,221 | | | 9.54 | % | | $ | 400,333 | | | 4.00 | % | | $ | 500,416 | | | 5.00 | % |
As of December 31, 2021 | | | | | | | | | | | |
Total capital to risk-weighted assets | $ | 1,086,897 | | | 15.52 | % | | $ | 735,512 | | | 10.50 | % | | $ | 700,488 | | | 10.00 | % |
Tier 1 capital to risk-weighted assets | $ | 999,284 | | | 14.27 | % | | $ | 595,414 | | | 8.50 | % | | $ | 560,390 | | | 8.00 | % |
Common equity tier 1 capital to risk-weighted assets | $ | 964,284 | | | 13.77 | % | | $ | 490,341 | | | 7.00 | % | | $ | 455,317 | | | 6.50 | % |
Tier 1 capital to average total assets | $ | 999,284 | | | 9.69 | % | | $ | 412,359 | | | 4.00 | % | | $ | 515,449 | | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Requirement (including capital conservation buffer) | | Minimum to be Well Capitalized |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| (Dollars in thousands) |
Bank Ratios | | | | | | | | | | | |
As of March 31, 2022 | | | | | | | | | | | |
Total capital to risk-weighted assets | $ | 1,000,591 | | | 13.93 | % | | $ | 754,127 | | | 10.50 | % | | $ | 718,216 | | | 10.00 | % |
Tier 1 capital to risk-weighted assets | $ | 910,777 | | | 12.68 | % | | $ | 610,484 | | | 8.50 | % | | $ | 574,573 | | | 8.00 | % |
Common equity tier 1 capital to risk-weighted assets | $ | 910,777 | | | 12.68 | % | | $ | 502,751 | | | 7.00 | % | | $ | 466,840 | | | 6.50 | % |
Tier 1 capital to average total assets | $ | 910,777 | | | 9.17 | % | | $ | 397,348 | | | 4.00 | % | | $ | 496,685 | | | 5.00 | % |
As of December 31, 2021 | | | | | | | | | | | |
Total capital to risk-weighted assets | $ | 995,549 | | | 14.34 | % | | $ | 728,867 | | | 10.50 | % | | $ | 694,159 | | | 10.00 | % |
Tier 1 capital to risk-weighted assets | $ | 908,717 | | | 13.09 | % | | $ | 590,035 | | | 8.50 | % | | $ | 555,327 | | | 8.00 | % |
Common equity tier 1 capital to risk-weighted assets | $ | 908,717 | | | 13.09 | % | | $ | 485,911 | | | 7.00 | % | | $ | 451,203 | | | 6.50 | % |
Tier 1 capital to average total assets | $ | 908,717 | | | 8.87 | % | | $ | 409,855 | | | 4.00 | % | | $ | 512,319 | | | 5.00 | % |
NOTE 15 – STOCKHOLDERS’ EQUITY
Preferred Stock and Common Stock
During the year ended December 31, 2021, OFG redeemed all of its outstanding Series A, Series B and Series D preferred stock at a redemption price of $25.00 per share. As a result of such redemptions, OFG no longer has any outstanding preferred stock. At both March 31, 2022 and December 31, 2021, common stock amounted to $59.9 million.
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Additional Paid-in Capital
Additional paid-in capital represents contributed capital in excess of par value of common stock, net of the costs of issuance. At both March 31, 2022 and December 31, 2021, accumulated common stock issuance costs charged against additional paid-in capital amounted to $13.6 million.
Legal Surplus
The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At March 31, 2022 and December 31, 2021, the Bank’s legal surplus amounted to $121.4 million and $117.7 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.
Treasury Stock
In January 2022, OFG announced the approval by the Board of Directors of a stock repurchase program to purchase $100 million of its outstanding shares of common stock. The shares of common stock repurchased are held by OFG as treasury shares. During the quarter ended March 31, 2022, OFG repurchased 1,219,132 shares for a total of $33.5 million at an average price of $27.46 per share. OFG did not purchase any shares of its common stock during the quarter ended March 31, 2022, other than through its publicly announced stock repurchase programs. During the quarter ended March 31, 2021, OFG did not repurchase any shares of its common stock.
At March 31, 2022 the number of shares that may yet be purchased under the $100 million program is estimated at 2,497,051 and was calculated by dividing the remaining balance of $66.5 million by $26.64 (closing price of OFG’s common stock at March 31, 2022).
The activity in connection with common shares held in treasury by OFG for the quarters ended March 31, 2022 and 2021 is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended March 31, |
| 2022 | | 2021 | | |
| Shares | | Dollar Amount | | Shares | | Dollar Amount | | | | |
| (In thousands, except shares data) |
Beginning of period | 10,248,882 | | | $ | 150,572 | | | 8,498,163 | | | $ | 102,949 | | | | | |
Common shares used upon lapse of restricted stock units and options | (255,893) | | | (3,334) | | | (192,174) | | | (1,955) | | | | | |
Common shares repurchased as part of the stock repurchase programs | 1,219,132 | | | 33,479 | | | — | | | — | | | | | |
End of period | 11,212,121 | | | $ | 180,717 | | | 8,305,989 | | | $ | 100,994 | | | | | |
OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Accumulated other comprehensive (loss) income, net of income taxes, as of March 31, 2022 and December 31, 2021 consisted of:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Unrealized (loss) gain on securities available-for-sale which are not other-than-temporarily impaired | $ | (23,460) | | | $ | 7,292 | |
Income tax effect of unrealized loss (gain) on securities available-for-sale | 2,938 | | | (1,629) | |
Net unrealized (loss) gain on securities available-for-sale which are not other-than-temporarily impaired | (20,522) | | | 5,663 | |
Unrealized loss on cash flow hedges | (185) | | | (804) | |
Income tax effect of unrealized loss on cash flow hedges | 69 | | | 301 | |
Net unrealized loss on cash flow hedges | (116) | | | (503) | |
Accumulated other comprehensive (loss) income, net of income taxes | $ | (20,638) | | | $ | 5,160 | |
The following table presents changes in accumulated other comprehensive (loss) income by component, net of taxes, for quarters ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Quarter Ended March 31, 2022 |
| Net unrealized loss on securities available-for-sale | | Net unrealized loss on cash flow hedges | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Beginning balance | $ | 5,663 | | | $ | (503) | | | $ | 5,160 | |
Other comprehensive (loss) income before reclassifications | (26,187) | | | 194 | | | (25,993) | |
Amounts reclassified out of accumulated other comprehensive income | 2 | | | 193 | | | 195 | |
Other comprehensive (loss) income | (26,185) | | | 387 | | | (25,798) | |
Ending balance | $ | (20,522) | | | $ | (116) | | | $ | (20,638) | |
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| Quarter Ended March 31, 2021 |
| Net unrealized gains on securities available-for-sale | | Net unrealized loss on cash flow hedges | | Accumulated other comprehensive (loss) income |
| (In thousands) |
Beginning balance | $ | 12,092 | | | $ | (1,070) | | | $ | 11,022 | |
Other comprehensive (loss) income before reclassifications | (4,948) | | | (304) | | | (5,252) | |
Amounts reclassified out of accumulated other comprehensive income | 1 | | | 459 | | | 460 | |
Other comprehensive (loss) income | (4,947) | | | 155 | | | (4,792) | |
Ending balance | $ | 7,145 | | | $ | (915) | | | $ | 6,230 | |
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OFG BANCORP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table presents reclassifications out of accumulated other comprehensive (loss) income for the quarters ended March 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | |
| Amount reclassified out of accumulated other comprehensive income Quarter Ended March 31, | | Affected Line Item in Consolidated Statement of Operations |
|
| 2022 | | 2021 | | | |
| (In thousands) | | |
Cash flow hedges: | | | | | | | |
Interest-rate contracts | $ | 193 | | | $ | 459 | | | | | Net interest expense |
Available-for-sale securities: | | | | | | | |
| | | | | | | |
Tax effect from changes in tax rates | 2 | | | 1 | | | | | Income tax expense |
| $ | 195 | | | $ | 460 | | | | | |
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