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What changed in OFG BANCORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of OFG BANCORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+409 added−421 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-24)

Top changes in OFG BANCORP's 2023 10-K

409 paragraphs added · 421 removed · 279 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

73 edited+26 added−30 removed163 unchanged
Biggest changeThis Digital First vision is anchored on four main pillars: • Digital: All customers interactions are on digital channels that are (a) always available, (b) with low friction, (c) low effort, (d) consistent, and (e) self-service with instant results with customers controlling how and when to transact. • Banking services are (a) low latency, (b) trouble free, (c) secure, (d) automated and (e) efficient with employees always looking for continuous improvement in achieving better and more efficient processes. • Relationships and Interactions: Interactions with expert bankers limited to most complex situations and can be over digital mediums.
Biggest changeThis Digital First vision is anchored on four main pillars: • Digital First: Our digital channels are (a) always available, (b) easy to use, (c) fast, (d) consistent, and (e) self-service with instant results with customers controlling how and when to transact.
OFG’s principal funding source is branch deposits. Through its branch network, Oriental offers personal non-interest and interest-bearing checking accounts, savings accounts, certificates of deposit, individual retirement accounts (“IRAs”) and commercial non-interest-bearing checking accounts. The FDIC insures the Bank’s deposit accounts up to applicable limits.
OFG’s principal funding source is branch deposits. Through its branch network, Oriental offers personal non-interest and interest-bearing checking accounts, savings accounts, certificates of deposit, individual retirement accounts (“IRAs”) and commercial non-interest and interest-bearing checking accounts. The FDIC insures the Bank’s deposit accounts up to applicable limits.
Oriental Financial Services, a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation, is a registered securities broker-dealer pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Oriental Financial Services does not carry customer accounts and is, accordingly, exempt from the Customer Protection Rule (SEC Rule 15c3-3).
Oriental Financial Services is a registered securities broker-dealer pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation. Oriental Financial Services does not carry customer accounts and is, accordingly, exempt from the Customer Protection Rule (SEC Rule 15c3-3).
Changes in statutes, regulations, or regulatory policies applicable us or any of our subsidiaries (including their interpretation or implementation) cannot be predicted and could have a material effect on our business and operations. We expect to remain subject to extensive regulation and supervision.
Changes in statutes, regulations, or regulatory policies applicable to us or any of our subsidiaries (including their interpretation or implementation) cannot be predicted and could have a material effect on our business and operations. We expect to remain subject to extensive regulation and supervision.
Transactions with Affiliates and Related Parties Transactions between the Bank and any of its affiliates are governed by sections 23A and 23B of the Federal Reserve Act. These sections are important statutory provisions designed to protect a depository institution from transferring to its affiliates the subsidy arising from the institution’s access to the Federal safety net.
Transactions with Affiliates and Related Parties Transactions between the Bank and any of its affiliates are governed by sections 23A and 23B of the Federal Reserve Act. These sections are important statutory provisions designed to protect a depository institution from transferring to its 15 affiliates the subsidy arising from the institution’s access to the Federal safety net.
The Banking Act further requires every bank to maintain a legal reserve which cannot be less than 20% of its demand liabilities, except government deposits (federal, commonwealth and municipal), which are secured by actual collateral. The Banking Act also requires change of control filings.
The Banking Act further requires every bank to maintain a legal reserve which cannot be less than 20% of its demand liabilities, except government deposits (federal, commonwealth and municipal), which are secured by actual collateral. 17 The Banking Act also requires change of control filings.
The Dodd-Frank Act also created a new consumer financial services regulator, the Consumer Financial Protection Bureau (the “CFPB”), empowered it to exercise broad rulemaking, supervision, and enforcement authority for a wide range of consumer protection laws previously exercised by federal banking regulators and other agencies.
The Dodd-Frank Act also created a new consumer financial services regulator, the Consumer Financial Protection Bureau (the “CFPB”), empowered to exercise broad rulemaking, supervision, and enforcement authority for a wide range of consumer financial laws previously exercised by federal banking regulators and other agencies.
OFG’s ability to originate loans depends primarily on the services that it provides to its borrowers, in making prompt credit decisions, and on the rates and fees that it charges. OFG continues to develop commercial relationships in the United States with its U.S. commercial loan program.
OFG’s ability to 6 originate loans depends primarily on the services that it provides to its borrowers, in making prompt credit decisions, and on the rates and fees that it charges. OFG continues to develop commercial relationships in the United States with its U.S. commercial loan program.
Under such rules, an insured depository institution is: (i) “well capitalized,” if it has a total risk-based capital ratio of 10% or more, a tier 1 risk-based capital ratio of 8% or more, a common equity tier 1 capital ratio of 6.5% or more, and a tier 1 leverage capital ratio of 5% or more, and is not subject to any written capital order or directive; 13 Table of Contents (ii) “adequately capitalized,” if it has a total risk-based capital ratio of 8% or more, a tier 1 risk-based capital ratio of 6% or more, a common equity tier 1 capital ratio of 4.5% or more, and a tier 1 leverage capital ratio of 4% or more; (iii) “undercapitalized,” if it has a total risk-based capital ratio that is less than 8%, a tier 1 risk-based ratio that is less than 6%, a common equity tier 1 capital ratio that is less than 4.5%, or a tier 1 leverage capital ratio that is less than 4%; (iv) “significantly undercapitalized,” if it has a total risk-based capital ratio that is less than 6%, a tier 1 risk-based capital ratio that is less than 4%, a common equity tier 1 capital ratio that is less than 3%, or a tier 1 leverage capital ratio that is less than 3%; and (v) “critically undercapitalized,” if it has a ratio of tangible equity (defined as tier 1 capital plus non-tier 1 perpetual preferred stock) to total assets that is equal to or less than 2%.
Under such rules, an insured depository institution is: (i) “well capitalized,” if it has a total risk-based capital ratio of 10% or more, a tier 1 risk-based capital ratio of 8% or more, a common equity tier 1 capital ratio of 6.5% or more, and a tier 1 leverage capital ratio of 5% or more, and is not subject to any written capital order or directive; (ii) “adequately capitalized,” if it has a total risk-based capital ratio of 8% or more, a tier 1 risk-based capital ratio of 6% or more, a common equity tier 1 capital ratio of 4.5% or more, and a tier 1 leverage capital ratio of 4% or more; (iii) “undercapitalized,” if it has a total risk-based capital ratio that is less than 8%, a tier 1 risk-based ratio that is less than 6%, a common equity tier 1 capital ratio that is less than 4.5%, or a tier 1 leverage capital ratio that is less than 4%; 13 (iv) “significantly undercapitalized,” if it has a total risk-based capital ratio that is less than 6%, a tier 1 risk-based capital ratio that is less than 4%, a common equity tier 1 capital ratio that is less than 3%, or a tier 1 leverage capital ratio that is less than 3%; and (v) “critically undercapitalized,” if it has a ratio of tangible equity (defined as tier 1 capital plus non-tier 1 perpetual preferred stock) to total assets that is equal to or less than 2%.
Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. 10 Table of Contents Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act implemented a variety of far-reaching changes and has been described as the most sweeping reform of the financial services industry since the 1930’s.
Any failure to meet the applicable requirements or minimum statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or engaging in finance activities, supervision or liquidation. 10 Dodd-Frank Wall Street Reform and Consumer Protection Act The Dodd-Frank Act implemented a variety of far-reaching changes and has been described as the most sweeping reform of the financial services industry since the 1930’s.
The Bank’s lending transactions include a diversified number of industries and activities, all of which are encompassed within four main categories: commercial, consumer, mortgage and auto loans and leases. OFG’s mortgage banking activities are conducted through a division of the Bank.
The Bank’s lending transactions include a diversified number of industries and activities, all of which are encompassed within four main categories: commercial, consumer, mortgage and auto loans. OFG’s mortgage banking activities are conducted through a division of the Bank.
The Bank offers banking services such as commercial, consumer, and mortgage lending, savings and time deposit products, wealth management services, and corporate and individual trust services, and capitalizes on its retail banking network to provide commercial and mortgage lending products to its clients.
The Bank offers banking services such as commercial, consumer, auto, and mortgage lending, savings and time deposit products, wealth management services, and corporate and individual trust services, and capitalizes on its retail banking network to provide commercial and mortgage lending products to its clients.
Banking activities include the Bank’s branches and mortgage banking activities with traditional retail banking products such as deposits, commercial loans, consumer loans and mortgage loans. The Bank’s lending activities are primarily with consumers located in Puerto Rico and the USVI.
Banking activities include the Bank’s branches and mortgage banking activities with traditional retail banking products such as deposits, commercial loans, consumer loans, auto loans, and mortgage loans. The Bank’s lending activities are primarily with consumers located in Puerto Rico and the USVI.
Under that law, if OFG fails to meet the requirements for being a financial holding company and is unable to correct such deficiencies within certain prescribed time periods, the Federal Reserve Board could require OFG to divest control of its depository institution subsidiary or alternatively cease conducting activities that are not permissible for bank holding companies that are not financial holding companies.
Under that law, if OFG fails to meet the requirements for being a financial holding company and is unable to correct such deficiencies within certain prescribed time periods, the Federal Reserve Board could require OFG to divest control of its depository institution subsidiary or alternatively cease conducting activities impermissible for bank holding companies that are not financial holding companies.
Failure to meet the capital rules could subject an institution to a variety of enforcement actions including the termination of deposit insurance by the FDIC and the imposition of certain restrictions on its business. As of December 31, 2022, OFG was in compliance with all applicable capital requirements. For more information, please refer to the accompanying consolidated financial statements.
Failure to meet the capital rules could subject an institution to a variety of enforcement actions including the termination of deposit insurance by the FDIC and the imposition of certain restrictions on its business. As of December 31, 2023, OFG was in compliance with all applicable capital requirements. For more information, please refer to the accompanying consolidated financial statements.
OFG measures the performance of these reportable segments based on pre-established annual goals involving different financial parameters such as net income, interest rate spread, loan production, and fees generated. For detailed information regarding the performance of OFG’s operating segments, please refer to “Note 28 – Business Segments” in OFG’s accompanying consolidated financial statements.
OFG measures the performance of these reportable segments based on pre-established annual goals involving different financial parameters such as net income, interest rate spread, loan production, and fees generated. For detailed information regarding the performance of OFG’s operating segments, please refer to “Note 27 – Business Segments” in OFG’s accompanying consolidated financial statements.
The Bank is currently the only depository institution subsidiary of OFG. 11 Table of Contents Since OFG is a financial holding company, its right to participate in the assets of any subsidiary upon the latter’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors (including depositors in the case of the Bank) except to the extent that OFG is a creditor with recognized claims against the subsidiary.
The Bank is currently the only depository institution subsidiary of OFG. 11 Since OFG is a financial holding company, its right to participate in the assets of any subsidiary upon the latter’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors (including depositors in the case of the Bank) except to the extent that OFG is a creditor with recognized claims against the subsidiary.
If there is no sufficient reserve fund to cover such balance, in whole or in part, the outstanding amount shall be charged against the bank’s capital account. The Banking Act provides that until said capital has been restored to its original amount and the reserve fund to 20% of the original capital, the bank may not declare any dividends.
If there is no sufficient reserve fund to cover such balance, in whole or in part, the outstanding amount must be charged against the bank’s capital account. The Banking Act provides that until said capital has been restored to its original amount and the reserve fund to 20% of the original capital, the bank may not declare any dividends.
As part of the Company’s ongoing strategic reviews, OFG sold its retirement plan administration business in its subsidiary Oriental Pension Consultants, Inc. (“OPC”) effective as of December 30, 2022, and thereafter discontinued its operations. OFG’s mission is to make possible the progress of our customers, employees, shareholders, and communities we serve.
As part of the Company’s ongoing strategic reviews, OFG sold its retirement plan administration business in its subsidiary Oriental Pension Consultants, Inc. (“OPC”) effective as of December 30, 2022, and thereafter ceased its operations. OFG’s mission is to make possible the progress of our customers, employees, shareholders, and communities we serve.
Commercial term loans generally have terms from one to five years, may be collateralized by the asset being acquired, real estate, or other available assets, and bear interest rates that float with the prime rate, LIBOR or another established index, or are fixed for the term of the loan.
Commercial term loans generally have terms from one to five years, may be collateralized by the asset being acquired, real estate, or other available assets, and bear interest rates that float with the prime rate, SOFR or another established index, or are fixed for the term of the loan.
In addition, all insured depository institutions are subject to the capital-based limitations required by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). Federal Home Loan Bank System The FHLB system, of which the Bank is a member, consists of 11 regional FHLBs supervised and regulated by the Federal Housing Finance Agency.
In addition, all insured depository institutions are subject to the capital-based limitations required by the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”). Federal Home Loan Bank System The Federal Home Loan Bank (the “FHLB”) system, of which the Bank is a member, consists of 11 regional FHLBs supervised and regulated by the Federal Housing Finance Agency.
Oriental Insurance currently earns commissions by acting as a licensed insurance agent in connection with the issuance of insurance policies by unaffiliated insurance companies and continues to cross market its services to Oriental’s existing customer base. OFG Reinsurance Ltd., a Cayman Islands company, is Oriental’s subsidiary engaged in the reinsurance business.
Oriental Insurance currently earns commissions by acting as a licensed insurance agent in connection with the issuance of insurance policies by unaffiliated insurance companies and continues to cross market its services to OFG’s existing customer base. OFG Reinsurance Ltd., a Cayman Islands company, is OFG’s subsidiary engaged in the reinsurance business.
Wealth Management Activities Wealth management activities at OFG are generated by four wholly-owned subsidiaries and a division of the Bank. These activities include such businesses as securities brokerage, insurance agency, captive reinsurance, pension plan administration and servicing, trust services, and other financial services.
Wealth Management Activities Wealth management activities at OFG are generated by three wholly-owned subsidiaries and a division of the Bank. These activities include such businesses as securities brokerage, insurance agency, captive reinsurance, pension plan administration and servicing, trust services, and other financial services.
It clears securities transactions through Pershing LLC, a clearing agent that carries the accounts of its customers on a “fully disclosed” basis. Oriental Insurance LLC, a Puerto Rico limited liability company, is Oriental’s subsidiary engaged in insurance agency services in Puerto Rico.
It clears securities transactions through Pershing LLC, a clearing agent that carries the accounts of its customers on a “fully disclosed” basis. Oriental Insurance LLC, a Puerto Rico limited liability company, is OFG’s subsidiary engaged in insurance agency services in Puerto Rico.
Generally, sections 23A and 23B (i) limit the extent to which a bank 15 Table of Contents or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus, and limit such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms that are consistent with safe and sound banking practices.
Generally, sections 23A and 23B (i) limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the bank’s capital stock and surplus, and limit such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms that are consistent with safe and sound banking practices.
It also offers separately-managed accounts and mutual fund asset allocation programs sponsored by unaffiliated professional asset managers. These services are designed to meet each client’s specific needs and preferences, including transaction-based pricing and asset-based fee pricing.
It also offers separately managed accounts and mutual fund asset allocation programs sponsored by unaffiliated professional asset managers. These services are designed to meet each client’s individual needs and preferences, including transaction-based pricing and asset-based fee pricing.
Our strategy to become a digital first bank will continue to be carried by investing in our: • Technology to make systems and processes oriented to provide digital customer service interactions above all else aiming for self-service to become the norm. 3 Table of Contents • People to attract, retain, and develop people with necessary capabilities and skills for digital transformation with a strong customer service orientation, flexibility, and good collaboration skills, in addition to technical capabilities needed for specific jobs. • Analytics to enhance our vision, empower business and drive profitability by anticipating our customers’ needs and proactively offer them solutions. • Business Development to build an engine of growth with intelligence of customer behavior and experience across the whole sales process from awareness to the final purchase and amplify digital sales models.
Our strategy to become a digital first bank will continue to be carried by investing in our: • People to attract, retain, and develop people with necessary capabilities and skills for digital transformation with a strong customer service orientation, flexibility, and good collaboration skills, in addition to technical capabilities needed for specific jobs. 3 • Technology to make systems and processes oriented to provide digital customer service interactions above all else aiming for self-service to become the norm. • Analytics to enhance our vision, empower business and drive profitability by anticipating our customers’ needs and proactively offer them solutions through the most appropriate channel. • Business Development to build an engine of growth with intelligence of customer behavior and experience across the whole sales process from awareness to the final purchase and amplify digital sales models.
OFG provides comprehensive banking and financial services and solutions to its clients through Oriental and various other subsidiaries, including commercial, consumer and mortgage lending, auto leasing and lending, financial planning, insurance sales, money management, investment banking and security brokerage services, as well as corporate and individual trust services. OFG operates through three major business segments: Banking, Wealth Management, and Treasury.
OFG provides comprehensive banking and financial services and solutions to its clients through Oriental and various other subsidiaries, including commercial, consumer, auto, and mortgage lending, financial planning, insurance sales, investment advisory and security brokerage services, as well as corporate and individual trust services. OFG operates through three major business segments: Banking, Wealth Management, and Treasury.
Banking Activities The Bank, OFG’s main subsidiary, is a full-service Puerto Rico commercial bank with its main office located in San Juan, Puerto Rico. The Bank has 41 branches throughout Puerto Rico and 2 branches in the USVI.
Banking Activities The Bank, OFG’s main subsidiary, is a full-service Puerto Rico commercial bank with its main office located in San Juan, Puerto Rico. The Bank has 42 branches throughout Puerto Rico and 2 branches in the USVI.
Moreover, the amount to be carried over to a particular year is limited to the excess of the NOL over 90% of the net income for the year for regular tax and is limited to the excess of the NOL over 70% of the net income for Alternative Minimum Tax (“ATM”) purposes.
Moreover, the amount to be carried over to a particular year is limited to the excess of the NOL over 90% of the net income for the year for regular tax and is limited to the excess of the NOL over 70% of the net income for alternative minimum tax (“AMT”) purposes.
The regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. 16 Table of Contents Failure of a financial institution to comply with the USA Patriot Act’s requirements could have serious legal consequences for the institution.
The regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. Failure of a financial institution to comply with the USA Patriot Act’s requirements could have serious legal consequences for the institution.
The transfer will 17 Table of Contents require the approval of the OCFI if it results in a change of control of the bank. Under the Banking Act, a change of control is presumed if an acquirer who did not own more than 5% of the voting capital stock before the transfer exceeds such percentage after the transfer.
The transfer will require the approval of the OCFI if it results in a change of control of the bank. Under the Banking Act, a change of control is presumed if an acquirer who did not own more than 5% of the voting capital stock before the transfer exceeds such percentage after the transfer.
In addition, the Board's Compensation Committee is actively engaged in achieving and maintaining internal and external pay equity for the executive team and the Board of Directors members while overseeing incentive compensation more broadly throughout the organization. In promoting external pay equity, the Board and the compensation committee make use of peer comparisons and benchmarking measures.
In addition, the Compensation Committee is actively engaged in achieving and maintaining internal and external pay equity for the executive team and the Board members while overseeing incentive compensation more broadly throughout the organization. In promoting external pay equity, the Board and its Compensation Committee make use of peer comparisons and benchmarking measures.
Such lines of credit bear an interest rate that floats with a base rate, the prime rate, LIBOR, SOFR or another established index. 5 Table of Contents Sale of Loans and Securitization Activities OFG may engage in the sale or securitization of the residential mortgage loans that it originates.
Such lines of credit bear an interest rate that floats with a base rate, the prime rate, SOFR or another established index. 5 Sale of Loans and Securitization Activities OFG may engage in the sale or securitization of the residential mortgage loans that it originates.
It also has two international banking entities (each an “IBE”) organized in Puerto Rico pursuant to the International Banking Center Regulatory Act of Puerto Rico, as amended (the “IBE Act”), a unit operating within the Bank, named Oriental Overseas (the “IBE Unit”), and the other is a wholly-owned subsidiary of the Bank, named Oriental International Bank, 4 Table of Contents Inc.
It also has two international banking entities (each an “IBE”) organized in Puerto Rico pursuant to the International Banking Center Regulatory Act of Puerto Rico, as amended (the “IBE Act”), a unit operating within the Bank, named Oriental Overseas (the “IBE Unit”), and the other is a wholly-owned subsidiary of the Bank, named Oriental International Bank, Inc. (the “IBE Subsidiary”).
Risk Factors of this annual report on Form 10-K. 19 Table of Contents Website Access to Reports OFG’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any and all amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on or through the “SEC filings” link of OFG’s internet website at www.ofgbancorp.com , as soon as reasonably practicable after OFG electronically files such material with, or furnishes it to, the SEC.
Website Access to Reports OFG’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any and all amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge on or through the “SEC filings” link of OFG’s internet website at www.ofgbancorp.com , as soon as reasonably practicable after OFG electronically files such material with, or furnishes it to, the SEC.
It reinsures credit insurance policies on consumer loans originated by the Bank, as well as personal accident and health policies underwritten by unaffiliated insurers. Oriental Pension Consultants Inc., a Florida corporation, is Oriental’s subsidiary engaged in the administration and servicing of retirement plans in the U.S., Puerto Rico, and the Caribbean.
It reinsures credit insurance policies on consumer loans originated by the Bank, as well as personal accident and health policies underwritten by unaffiliated insurers. Oriental Pension Consultants Inc., a Florida corporation, is an OFG subsidiary that was engaged in the administration and servicing of retirement plans in the U.S., Puerto Rico, and the Caribbean.
(the “IBE Subsidiary”). The IBE Unit and the IBE Subsidiary offer the Bank certain Puerto Rico tax advantages, and their services are limited under Puerto Rico law to persons and assets/liabilities located outside of Puerto Rico.
The IBE Unit and the IBE Subsidiary offer the Bank certain Puerto Rico 4 tax advantages, and their services are limited under Puerto Rico law to persons and assets/liabilities located outside of Puerto Rico.
As of December 31, 2022, OFG’s management concluded that its internal control over financial reporting was effective.
As of December 31, 2023, OFG’s management concluded that its internal control over financial reporting was effective.
USA Patriot Act Under Title III of the USA Patriot Act, also known as the “International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001,” as amended, which is part of the legislative framework known as the “Bank Secrecy Act”, all financial institutions, including OFG, Oriental Financial Services, and the Bank, are generally required to identify and verify the identity of their customers (including the beneficial owners of a legal entity customer and an individual with significant responsibility for managing such legal entity customer), adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their customers and their transactions.
USA Patriot Act Under Title III of the USA Patriot Act, also known as the “International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001,” as amended, which is part of the legislative framework known as the “Bank Secrecy Act”, all financial institutions, including OFG, Oriental Financial Services, and the Bank, are generally required to identify and verify the identity of their customers (including the beneficial owners of a legal entity customer and an individual with significant responsibility for managing such legal entity customer), adopt formal and comprehensive anti-money laundering programs, scrutinize or prohibit altogether certain transactions of special concern, and be prepared to respond to inquiries from U.S. law enforcement agencies concerning their customers and their transactions. 16 The US Treasury has issued a number of regulations implementing the USA Patriot Act that apply certain of its requirements to financial institutions.
The 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 December 31, 2022 and 2021, legal surplus amounted to $133.9 million and $117.7 million, respectively.
The 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 December 31, 2023 and 2022, legal surplus amounted to $151.0 million and $133.9 million, respectively.
On December 30, 2022, the Company sold the rights to administer and service the retirement plans of its customers and discontinued its operations. Corporate and individual trust services are provided by Oriental Trust, the Bank’s trust division. Treasury Activities Treasury activities encompass all of the Company’s treasury-related functions.
On December 30, 2022, the Bank sold the rights to administer and service the retirement plans of its customers, and Oriental Pension Consultants ceased operations. Corporate and individual trust services are provided by Oriental Trust, the Bank’s trust division. Treasury Activities Treasury activities encompass all of the Company’s treasury-related functions.
The Bank has an operating subsidiary, OFG USA, which is organized in Delaware but operates out of Cornelius, North Carolina.
The Bank has a wholly-owned operating subsidiary, OFG USA, which is organized in Delaware but operates out of Cornelius, North Carolina.
The Basel III capital rules expand such categories by introducing a common equity tier 1 capital requirement for all depository institutions, revising the minimum risk-based capital ratios and the proposed supplementary leverage requirement for advanced approaches banking organizations.
The Basel III capital rules introduced a common equity tier 1 capital requirement for all depository institutions, revising the minimum risk-based capital ratios and the proposed supplementary leverage requirement for advanced approaches banking organizations.
The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR.
The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% DRR. Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.
Oriental Financial Services LLC, a Puerto Rico limited liability company, is Oriental’s subsidiary engaged in securities brokerage and investment advisory activities. It operates in accordance with Oriental’s strategy of providing retail and institutional clients fully integrated financial solutions which can include a variety of investment alternatives such as tax-advantaged fixed income securities, mutual funds, stocks, and bonds.
Oriental Financial Services LLC, a Puerto Rico limited liability company, is OFG’s subsidiary engaged in securities brokerage and investment advisory activities. Its operations are part of OFG’s strategy of providing retail and institutional clients fully integrated financial solutions. These can include a variety of investment alternatives such as tax-advantaged fixed income securities, mutual funds, stocks, and bonds.
As of December 31, 2022, the Bank meets the requirements to be considered a well-capitalized institution and is therefore not subject to these limitations on brokered deposits.
Undercapitalized institutions are not permitted to accept brokered deposits. As of December 31, 2023, the Bank meets the requirements to be considered a well-capitalized institution and is therefore not subject to these limitations on brokered deposits.
OFG encounters intense competition in attracting and retaining deposits and in its consumer and commercial lending activities. Management believes that OFG has been able to compete effectively for deposits and loans by offering a variety of transactional account products and loans with competitive terms, emphasizing the quality of its service and its innovative banking technologies.
Management believes that OFG has been able to compete effectively for deposits and loans by offering a variety of transactional account products and loans with competitive terms, emphasizing the quality of its service and its innovative banking technologies.
Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the interest paid on such deposits. Undercapitalized institutions are not permitted to accept brokered deposits.
Brokered Deposits FDIC regulations adopted under the FDIA govern the receipt of brokered deposits by banks. Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the interest paid on such deposits.
U.S. agency mortgage-backed securities, the largest component, consist principally of pools of residential mortgage loans that are made to consumers and could be either retained as available for sale (“AFS”) securities or resold in the form of pass-through certificates in the secondary market, the payment of interest and principal of those pools is guaranteed by GNMA, FNMA or FHLMC. 6 Table of Contents Market Area and Competition The main geographic business and service area of OFG is Puerto Rico, where the banking market is competitive.
U.S. agency mortgage-backed securities, the largest component, consist principally of pools of residential mortgage loans that are made to consumers and could be either retained as available for sale (“AFS”) or held to maturity (“HTM”) securities or resold in the form of pass-through certificates in the secondary market, the payment of interest and principal of those pools is guaranteed by GNMA, FNMA or FHLMC.
OFG’s corporate governance principles and guidelines, code of business conduct and ethics, and the charters of its audit committee, compensation committee, risk and compliance committee, and corporate governance and nominating committee are available free of charge on OFG’s website at www.ofgbancorp.com under the corporate governance link.
OFG’s corporate governance principles and guidelines, code of business conduct and ethics, and the charters of its audit committee, compensation committee, risk and compliance committee, and corporate governance and nominating committee are available free of charge on OFG’s website at www.ofgbancorp.com under the corporate governance link. 19 OFG’s Code of Business Conduct and Ethics applies to its directors, officers, employees and agents, including its principal executive, financial and accounting officers.
The auto credit department has the specialized structure and resources to provide the service required for this product according to market demands and trends. The auto loan credit policy establishes specific guidance and parameters for the underwriting and origination processes.
These loans are generated mainly through dealers authorized and approved by OFG’s auto credit department. The auto credit department has the specialized structure and resources to provide the service required for this product according to market demands and trends. The auto loan credit policy establishes specific guidance and parameters for the underwriting and origination processes.
The IBE Act empowers the OCFI to revoke or suspend, after notice and hearing, a license issued thereunder if, among other things, the IBE fails to comply with the IBE Act, the IBE Regulations or the terms of its license, or if the OCFI finds that the business or affairs of the IBE are conducted in a manner that is not consistent with the public interest.
They are also required to submit quarterly and annual reports of their financial condition and results of operations to the OCFI, including annual audited financial statements. 18 The IBE Act empowers the OCFI to revoke or suspend, after notice and hearing, a license issued thereunder if, among other things, the IBE fails to comply with the IBE Act, the IBE Regulations or the terms of its license, or if the OCFI finds that the business or affairs of the IBE are conducted in a manner that is not consistent with the public interest.
As provided by the Dodd-Frank Act, however, a financial holding company may not acquire, without prior Federal Reserve Board approval, a company in a transaction in which the total consolidated assets to be acquired by the financial holding company exceed $10 billion. 9 Table of Contents In addition, the Gramm-Leach-Bliley Act specifically gives the Federal Reserve Board the authority, by regulation or order, to expand the list of financial or incidental activities, but requires consultation with the US Treasury Department and gives the Federal Reserve Board authority to allow a financial holding company to engage in any activity that is complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system.
As provided by the Dodd-Frank Act, however, a financial holding company may not acquire, without prior Federal Reserve Board approval, a company in a transaction in which the total consolidated assets to be acquired by the financial holding company exceed $10 billion. 9 In addition, the Gramm-Leach-Bliley Act specifically gives the Federal Reserve Board the authority, by regulation or order, to expand the list of financial or incidental activities, but requires consultation with the U.S.
In addition, as a highly regulated entity, OFG makes sure that its employees are properly trained on company policies and important compliance matters, including regulatory compliance and anti-money laundering programs, among others. All employees are required to complete annual online trainings covering all required topics. Compensation A key component of delivering our mission is our compensation program.
In addition, as a highly regulated entity, OFG makes sure that its employees are properly trained on company policies and compliance matters, including regulatory compliance and anti-money laundering programs, among others.
Management and Board Oversight Management is engaged in OFG’s efforts regarding management of human capital resources through regular informational meetings, OFG’s Enterprise Risk Management program and organized succession planning. The Board of Directors oversees these activities through regular reports by senior management regarding new or altered programs and as part of the Compensation Committee and Enterprise Risk Management process.
The Board oversees these activities through regular reports by senior management regarding new or altered programs and as part of the Compensation Committee and Enterprise Risk Management process.
The Bank is an approved seller of FNMA mortgage loans for issuance of FNMA mortgage-backed securities. The Bank is also an approved issuer of GNMA mortgage-backed securities.
The Bank is an approved seller of FNMA mortgage loans for issuance of FNMA mortgage-backed securities. The Bank is also an approved issuer of GNMA mortgage-backed securities. The Bank is the master servicer of its mortgage loan portfolio and the GNMA, FNMA and FHLMC pools that it issues.
The application of our compensation philosophy is supported through program design and communication. It is also presented to the Compensation Committee annually. We also offer a comprehensive benefits package to all eligible employees. We continuously review our compensation and benefits package through the participation of market surveys.
It is also presented to the Compensation Committee annually. We also offer a comprehensive benefits package to all eligible employees. We continuously review our compensation and benefits practices through the participation of market surveys. These results and metrics assist us to improve, and drive pay equity while ensuring our competitiveness.
For many years, OFG’s investment in human capital has also involved commitments to worker training, apprenticeship programs and funding college scholarships for employee’s dependents. We also provide targeted benefits aimed at promoting work-life balance, such as paid off time for vacation, illness, maternity and paternity leave, community service leave, personal days, and flexible work arrangements, among others.
OFG’s investment in human capital extends to our workforce’s dependents and during the last nine years $533 thousand has been awarded to 109 students as part of our university scholarship program for our employee’s dependents. 8 We also provide targeted benefits aimed at promoting work-life balance, such as paid time-off for vacation, illness, maternity and paternity leave, community service leave, personal days, and flexible work arrangements, among others.
These results and metrics assist us to improve, and drive pay equity while ensuring our competitiveness. Wellbeing and safety The success of our business is fundamentally connected to the wellbeing of our people. We have a holistic approach to wellbeing that considers five dimensions: physical, emotional, professional, community and financial.
Wellbeing and Safety The success of our business is fundamentally connected to the wellbeing of our people. We have a holistic approach to wellbeing that considers five dimensions: physical, emotional, professional, community and financial. Our wellness program offers a comprehensive series of onsite and virtual activities throughout the year focused on these dimensions.
The five capital categories established by the agencies under their prompt corrective action framework are: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”.
These regulations are designed to place restrictions on U.S. insured depository institutions if their capital levels begin to show signs of weakness. The five capital categories established by the agencies under their prompt corrective action framework are: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized”.
Because the capital requirements must be the same for insured depository institutions and their holding companies, the Collins Amendment generally excludes certain debt or equity instruments, such as cumulative perpetual preferred stock and trust preferred securities, from Tier 1 Capital. 12 Table of Contents The Basel III capital rules adopted by the federal banking agencies revise the agencies’ risk-based and leverage capital requirements for banking organizations and consolidate three separate notices of proposed rulemaking that the OCC, Federal Reserve Board and FDIC published in the Federal Register on August 30, 2012, with selected changes.
Because the capital requirements must be the same for insured depository institutions and their holding companies, the Collins Amendment generally excludes certain debt or equity instruments, such as cumulative perpetual preferred stock and trust preferred securities, from Tier 1 Capital. 12 The capital rules adopted by the federal banking agencies in 2013 under Basel III framework include a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets that apply to all banking organizations.
In addition, it granted a one-time initial assessment credit (of approximately $4.7 billion) to recognize institutions’ past contributions to the fund. As a result of the merger of the BIF and the SAIF, all insured institutions are subject to the same assessment rate schedule.
As a result of the merger of the BIF and the SAIF, all insured institutions are subject to the same assessment rate schedule.
OFG has also utilized outreach and partnerships with local community resources at different locations such as workforce development agencies, industry groups and other entities to strengthen OFG’s hiring process and expand the future workforce candidate pool. We continually monitor employee turnover rates, as our success depends upon retaining our highly skilled and dedicated talent.
During 2023, OFG was present in 18 job fairs held in Puerto Rico, US Virgin Islands and the US mainland. OFG has also utilized outreach and partnerships with local community resources at different locations such as workforce development agencies, industry groups and other entities to strengthen OFG’s hiring process and expand the future workforce candidate pool.
Our wellness program offers a comprehensive series of onsite and virtual activities throughout the year focused on these dimensions. We offer continuing financial planning education by OFG’s 401(k) plan administrator to assist employees in financial and retirement planning.
We offer continuing financial planning education by OFG’s 401(k) plan administrator to assist employees in financial and retirement planning.
The interchange fee restrictions contained in the Durbin Amendment, and the rules promulgated thereunder, apply to debit card issuers with $10 billion or more in total consolidated assets, and presently does not apply to OFG. Additional information regarding the Durbin Amendment is discussed under Item 1A.
The interchange fee restrictions contained in the Durbin Amendment, and the rules promulgated thereunder, apply to debit card issuers with $10 billion or more in total consolidated assets as of the end of previous calendar year and imposes limits on what banks may charge for debit card interchange fees.
Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions in the U.S. OFG also competes with brokerage firms with retail operations, credit unions, savings and loan cooperatives, small loan companies, insurance agencies, and mortgage banks in Puerto Rico.
OFG also competes with brokerage firms with retail operations, credit unions, savings and loan cooperatives, small loan companies, insurance agencies, and mortgage banks in Puerto Rico. OFG encounters intense competition in attracting and retaining deposits and in its consumer and commercial lending activities.
We believe that our philosophy of providing highly competitive compensation, along with significant opportunities for career growth and development opportunities, encourage a high level of employee retention. 7 Table of Contents Learning and development OFG ensures we have the right talent in the right place to meet our needs.
We believe that our philosophy of providing highly competitive performance driven compensation, an employee centered culture, along with significant opportunities for career growth and development opportunities, encourages a high level of employee retention. At December 31, 2023, OFG’s talent had an average of 10 years of service.
As of December 31, 2022, OFG had 2,253 employees, none of which are represented by a collective bargaining group. Diversity, equity and inclusion OFG’s hiring and talent management practices are designed to ensure a diverse workforce that reflects the makeup of the communities in which it operates.
Diversity, Equity, and Inclusion OFG’s hiring and talent management practices are committed to ensuring a diverse workforce that reflects the makeup of the communities in which it operates. Oriental prepares an annual diversity plan, whereby it identifies members of the community that are underrepresented in our workforce.
Oriental also has customer service and sales-service academies provided to client-facing sales and service employees. During 2022, and as part of our career growth and development programs, 25% of open positions were filled internally. OFG conducts a succession planning process once a year for senior leaders and presents it to our Board of Directors.
Leadership development programs, Gallup-based initiatives, and emerging talent programs, including trainee and alumni mentorship programs, further contribute to our talent pool. OFG also has customer service and sales-service academies provided to client-facing sales and service employees. During the year ended December 31, 2023, and as part of our career growth and development programs, 20% of open positions were filled internally.
OFG prepares an annual diversity plan, whereby it identifies members of the community that are underrepresented in our workforce. We are continuously reviewing and ensuring a diverse workforce representation at all levels. In addition, OFG’s anti-discrimination policy forbids employment decisions, including hiring, promotions, or terminations, based on race, gender, age, sexual orientation, or disability and prohibits harassment in the workplace.
As part of our culture assessment, 70% of employees responded favorably to the statement “This organization seeks to hire people with diverse backgrounds and ways of thinking.” In addition, OFG’s anti-discrimination policy forbids employment decisions, including hiring, promotions, or terminations, based on race, gender, age, sexual orientation, or disability and prohibits harassment in the workplace.
The Municipal Code was also amended by Act 52-2022 to provide for the implementation of rules regarding the filing of supplementary information together with personal tax returns to be filed with the Municipal Revenues Collection Center and to include provisions relating to the filing of volume of business declarations for purposes of municipal license tax. 18 Table of Contents International Banking Center Regulatory Act of Puerto Rico The business and operations of the Bank’s IBE Unit and IBE Subsidiary are subject to supervision and regulation by the OCFI.
International Banking Center Regulatory Act of Puerto Rico The business and operations of the Bank’s IBE Unit and IBE Subsidiary are subject to supervision and regulation by the OCFI.
The Bank is the master servicer of the GNMA, FNMA and FHLMC pools that it issues and of its mortgage loan portfolio and up to December 31, 2022 had a subservicing arrangement with a third party for a portion of its acquired loan portfolio. This subservicing arrangement will conclude on May 1, 2023.
The Bank had a subservicing arrangement with a third party for a portion of its acquired loan portfolio that was terminated on May 1, 2023. After such termination, OFG services all of its mortgage loan portfolio. Loan Underwriting Auto loans: OFG provides financing for the purchase of new or used motor vehicles.
Removed
Branches transformed from a place mainly for transactions to a place where advice and business development are primarily provided. • Data and Insight: Readily available, timely insights that helps customers to monitor and manage their finances. Our banking experts use insights from data to proactively help customers achieve their life goals and aspirations.
Added
All routine transactions are available digitally, with an omnichannel approach. • Relationships and Interactions: Branches transformed from a place where customers carry out transactions to a hub where they receive advice and foster business development. Expert financial guidance is provided through digital and in person channels. • Operational excellence: Our operations work flawlessly.
Removed
OFG services most of its mortgage loan portfolio. Loan Underwriting Auto loans and leases: OFG provides financing for the purchase of new or used motor vehicles. These loans are generated mainly through dealers authorized and approved by OFG’s auto credit department.
Added
Our technology, systems and processes are trouble free, secure, automated, efficient and low latency. We relentlessly pursue the improvement of our processes. • Customer Insights: Readily available, timely insights that empower customers to monitor and manage their finances. Our banking experts are equipped with the knowledge to proactively help customers achieve their financial aspirations.
Removed
It has managed and participated in public offerings and private placements of debt and equity securities in Puerto Rico and has engaged in municipal securities business with the Commonwealth of Puerto Rico and its instrumentalities, municipalities, and public corporations.
Added
Market Area and Competition The main geographic business and service area of OFG is Puerto Rico, where the banking market is competitive. Puerto Rico banks are subject to the same federal laws, regulations and supervision that apply to similar institutions in the U.S.
Removed
As part of the Scotiabank PR & USVI Acquisition on December 31, 2019, OFG began to operate in the USVI with the intention to grow the business acquired in such jurisdiction.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTo the extent that OFG continues to increase its core deposits market share, OFG and the Bank could eventually cross the asset thresholds that would trigger the applicability of the Durbin Amendment. 26 Table of Contents Our risk management policies, procedures and systems may be inadequate to mitigate all risks inherent in our various businesses.
Biggest changeOur risk management policies, procedures and systems may be inadequate to mitigate all risks inherent in our various businesses. A comprehensive risk management function is essential to the financial and operational success of our business.
Heightened credit risk could require us to increase our provision for credit losses, which could have a material adverse effect on our results of operations and financial condition. Originating loans is an essential element of our business, and there is a risk that the loans will not be repaid.
CREDIT RISK Heightened credit risk could require us to increase our provision for credit losses, which could have a material adverse effect on our results of operations and financial condition. Originating loans is an essential element of our business, and there is a risk that the loans will not be repaid.
A continuing decline in the real estate market would likely result in an increase in delinquencies, defaults and foreclosures and in a reduction in loan origination activity, which would adversely affect our financial results. The residential mortgage loan origination business has historically been cyclical, enjoying periods of strong growth and profitability followed by periods of lower volumes and industry-wide losses.
A decline in the real estate market would likely result in an increase in delinquencies, defaults and foreclosures and in a reduction in loan origination activity, which would adversely affect our financial results. The residential mortgage loan origination business has historically been cyclical, enjoying periods of strong growth and profitability followed by periods of lower volumes and industry-wide losses.
The interest rates that we pay on our securities are also influenced by, among other things, applicable credit ratings from recognized rating agencies. A downgrade to any of these credit ratings could affect our ability to access the capital markets, increase our borrowing costs and have a negative impact on our results of operations.
The interest rates that we pay on our investment securities are also influenced by, among other things, applicable credit ratings from recognized rating agencies. A downgrade to any of these credit ratings could affect our ability to access the capital markets, increase our borrowing costs and have a negative impact on our results of operations.
The adequacy of the reserve and the ultimate amount of losses incurred will depend on, among other things, the actual future mortgage loan performance, the actual level of future repurchase and indemnification requests, the actual success rate of claimants, developments in litigation related to us and the industry, actual recoveries on the collateral, and macroeconomic conditions (including unemployment levels and housing prices).
The adequacy of the reserve and the ultimate amount of losses incurred will depend on, among other things, the actual future mortgage loan performance, the actual level of future repurchase and indemnification requests, the actual success rate of claimants, developments in litigation 22 related to us and the industry, actual recoveries on the collateral, and macroeconomic conditions (including unemployment levels and housing prices).
Financial institutions are generally also required to file suspicious activity reports with the Financial Crimes Enforcement Network of the US Treasury Department if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.
Financial institutions are generally also required to file suspicious activity reports with the Financial Crimes Enforcement Network of the US Treasury if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts.
This makes us vulnerable to downturns in Puerto Rico’s and the USVI’s economy as a result of natural disasters, such as earthquakes in 2020, and hurricanes Irma and Maria in 2017, and Hurricane Fiona in September 2022, the severity of which could increase as a result of the effects of climate change.
This makes us vulnerable to downturns in Puerto Rico’s and the USVI’s economy as a result of natural disasters, such as earthquakes in 2020, and hurricanes Irma and Maria in 2017, and Hurricane Fiona in 2022, the severity of which could increase as a result of the effects of climate change.
This default risk is affected by a number of factors, including: • the duration of the loan; • credit risks of a particular borrower; • changes in economic or industry conditions; and • in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.
This default risk is affected by a number of factors, including: • the duration of the loan; 21 • credit risks of a particular borrower; • changes in economic or industry conditions; and • in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.
It is possible that future accounting standards that we are required to adopt could change the current accounting treatment that applies to the consolidated financial statements and that such changes could have a material effect on our financial condition and results of operations.
It is possible that future accounting standards that we are required to adopt could change the 27 current accounting treatment that applies to the consolidated financial statements and that such changes could have a material effect on our financial condition and results of operations.
In addition, the Durbin Amendment is a provision in the larger Dodd-Frank Act that gave the Federal Reserve the authority to establish rates on debit card transactions. The Durbin Amendment aims to control debit card interchange fees and restrict anti-competitive practices.
In addition, the Durbin Amendment is a provision in the Dodd-Frank Act that gave the Federal Reserve the authority to establish rates on debit card transactions. The Durbin Amendment aims to control debit card interchange fees and restrict anti-competitive practices.
Our financial statements are subject to the application of Generally Accepted Accounting Principles (“GAAP”), which are periodically revised and/or expanded. Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by FASB.
Our financial statements are subject to the application of Generally Accepted Accounting Principles (“GAAP”), which are periodically revised or expanded. Accordingly, from time to time, we are required to adopt new or revised accounting standards issued by FASB.
Our methodology for measuring the adequacy of the allowance relies on several key elements, which include a specific allowance for identified problem loans and a general systematic allowance.
Our methodology for measuring the adequacy of the ACL relies on several key elements, which include a specific allowance for identified problem loans and a general systematic allowance.
Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities could have a materially adverse effect on our results of operations and/or financial condition.
Bank regulators periodically review our ACL and may require us to increase our provision for credit losses or loan charge-offs. Any increase in our ACL or loan charge-offs as required by these regulatory authorities could have a materially adverse effect on our results of operations and/or financial condition.
Our business relies on the secure, successful and uninterrupted functioning of our core banking platform, information technology, telecommunications, and loan servicing. We outsource some of our major systems, such as customer data and deposit processing, part of our mortgage loan servicing, internet and mobile banking, and electronic fund transfer systems.
Our business relies on the secure, successful and uninterrupted functioning of our core banking platform, information technology, telecommunications, and loan servicing. We outsource some of our major systems, such as customer data and deposit processing, internet and mobile banking, and electronic fund transfer systems.
In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. 27 Table of Contents COMPETITIVE AND STRATEGIC RISK Failure to keep pace with technological change could adversely affect OFG’s results of operations and financial condition.
In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. COMPETITIVE AND STRATEGIC RISK Failure to keep pace with technological change could adversely affect OFG’s results of operations and financial condition.
For example, the Dodd-Frank Act has a broad impact on the financial services industry, including significant regulatory and compliance changes, as discussed under the subheading “Dodd-Frank Wall Street Reform and Consumer Protection Act” in Item 1of this annual report on Form 10-K.
For example, the Dodd-Frank Act has a broad impact on the financial services industry, including significant regulatory and compliance changes, as discussed under the subheading “Dodd-Frank Wall Street Reform and Consumer Protection Act” in Item 1 of this annual report on Form 10-K.
The law applies to banks with over $10 billion in consolidated assets and limits these banks on what they charge for debit card interchange fees.
This law applies to banks with over $10 billion in consolidated assets and limits these banks on what they charge for debit card interchange fees.
If consumers develop or maintain negative attitudes about incurring debt, or if consumption trends decline, our business and financial results will be negatively affected. 28 Table of Contents ACCOUNTING AND TAX RISK Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our financial statements.
If consumers develop or maintain negative attitudes about incurring debt, or if consumption trends decline, our business and financial results will be negatively affected. ACCOUNTING AND TAX RISK Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our financial statements.
In determining the amount of the allowance for credit losses, we rely on loan quality reviews, past and expected loss experience, and an evaluation of economic conditions, among other factors. If our assumptions prove to be incorrect, our allowance for credit losses may not be enough to cover losses inherent in our loan portfolio, resulting in additions to the allowance.
In determining the amount of the ACL, we rely on loan quality reviews, past and expected loss experience, and an evaluation of economic conditions, among other factors. If our assumptions prove to be incorrect, our ACL may not be enough to cover losses inherent in our loan portfolio, resulting in additions to the ACL.
Although we believe our allowance for credit losses is currently sufficient given the constant monitoring of the risk inherent in the loan portfolio, there is no precise method of predicting loan losses and therefore we always face the risk that charge-offs in future periods will exceed the allowance for credit losses and that additional increases in the allowance for credit losses will be required.
Although we believe our ACL is currently sufficient given the constant monitoring of the risk inherent in the loan portfolio, there is no precise method of predicting loan losses and therefore we always face the risk that charge-offs in future periods will exceed the ACL and that additional increases in the ACL will be required.
In the past, the decline in Puerto Rico’s economy had an adverse effect in the credit quality of our loan portfolios. Among other things, during the local recession, we experienced an increase in the level of non-performing assets and credit loss provision, which adversely affected our profitability.
In the past, the decline in Puerto Rico’s economy had an adverse effect in the credit quality of our mortgage and commercial real estate loan portfolios. Among other things, during the local recession, we experienced an increase in the level of non-performing assets and credit loss provision, which adversely affected our profitability.
ECONOMIC AND MARKET CONDITIONS RISK Most of our business is conducted in Puerto Rico, where economic and government fiscal and liquidity challenges, as well as the impact of natural disasters and the Covid-19 pandemic, have adversely impacted and may continue to adversely impact us. Our business is directly affected by economic conditions within Puerto Rico.
ECONOMIC AND MARKET CONDITIONS RISK Most of our business is conducted in Puerto Rico, where economic and government fiscal and liquidity challenges, as well as the impact of natural disasters and pandemics have adversely impacted and may continue to adversely impact us. Our business is directly affected by economic conditions within Puerto Rico.
The full impact of the actions by the Russian Federation regarding Ukraine are not known at this time, but they could continue to bring economic disruption, heightened volatility in financial and commodity markets, and diminished consumer, business and investor confidence, among others, adversely impacting the financial services industry generally and our business, financial condition, results of operation, and stock price.
The full impact of the actions by the Russian Federation regarding Ukraine and from the conflict in Israel are not known at this time, but they could continue to bring economic disruption, supply-chain interruptions, heightened volatility in financial and commodity markets, and diminished consumer, business and investor confidence, among others, adversely impacting the financial services industry generally and our business, financial condition, results of operation, and stock price.
We may be required to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition.
We may be required to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements. Failure to comply with the new requirements may negatively impact our results of operations and financial condition and may limit our ability to implement our strategic initiatives.
During 2022, we repurchased $24.2 million of loans from GNMA and FNMA. We have established reserves in our consolidated financial statements for potential losses that are considered to be both probable and reasonably estimable related to the mortgage loans sold by us.
During 2023, we repurchased $9.6 million of loans from GNMA and FNMA. We have established reserves in our consolidated financial statements for potential losses that are considered to be both probable and reasonably estimable related to the mortgage loans sold by us.
Although we are normally able to fund our operations through deposits, as well as through advances from the FHLB-NY, our business may need to access other wholesale funding sources to satisfy our liquidity needs. We expect to have continued access to credit from the foregoing sources of funds.
Although we are normally able to fund our operations through deposits, as well as through advances from the FHLB-NY, our business may need to access other wholesale funding sources, and the Federal Reserve as lender of last resort to satisfy our liquidity needs. We expect to have continued access to credit from the foregoing sources of funds.
Terrorist attacks and armed conflicts may impact all aspects of our operations, revenues, costs and stock price. Geopolitical and macroeconomic uncertainty, including the military actions taken by the Russian Federation against Ukraine that began in early 2022, have negatively impacted and will continue to have a significant negative impact on the global and United States economies.
Terrorist attacks and armed conflicts may impact all aspects of our operations, revenues, costs and stock price. 20 Geopolitical and macroeconomic uncertainty, including the military actions taken by the Russian Federation against Ukraine that began in early 2022 and the armed conflict in Israel as a result of a terrorist attack by Hamas in late 2023, have negatively impacted and will continue to have a significant negative impact on the global and United States economies.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve clients and to reduce costs.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services, such as artificial intelligence technologies. The effective use of technology 26 increases efficiency and enables financial institutions to better serve clients and to reduce costs.
Although federal disaster recovery assistance and related insurance payouts are expected to drive economic growth in the short term, there is no guarantee that funds set aside for these purposes will not be repurposed by the federal government or that their disbursement will not be unreasonably conditioned or delayed.
Although federal disaster reconstruction assistance is expected to continue to drive economic growth in the short term, there is no guarantee that funds set aside for these purposes will not be repurposed by the federal government or that their disbursement will not be unreasonably conditioned or delayed.
This could result in, among other things, a reduction of creditworthy borrowers seeking loans, an increase in loan delinquencies, defaults and foreclosures, an increase in classified and non-accrual loans, a decrease in the value of collateral for loans, and a decrease in core deposits.
This could result in, among other things, a reduction of creditworthy borrowers seeking loans, an increase in loan delinquencies, defaults and foreclosures, an increase in classified and non-accrual loans, a decrease in the value of collateral for loans, and a decrease in core deposits. Any of these factors could materially impact our business.
In an effort to address the Commonwealth’s ongoing fiscal problems, the Puerto Rico government has enacted tax reforms in the past providing, among other things, for changes in income tax rates and the expansion of certain taxes, such as the sales and use tax, and may do so again in the future.
The Puerto Rico government has enacted tax reforms in the past providing, among other things, for changes in income tax rates and the expansion of certain taxes, such as the sales and use tax, and may do so again in the future.
If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common shares or our regulatory capital levels, but such an impairment loss could significantly restrict OFG’s ability to make dividend payments without prior regulatory approval. Based on our annual goodwill impairment test, we determined that no impairment charges were necessary.
If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common shares or our regulatory capital levels, but such an impairment loss could significantly restrict OFG’s ability to make dividend payments without prior regulatory approval.
A comprehensive risk management function is essential to the financial and operational success of our business. The types of risk we monitor and seek to manage include, but are not limited to, operational, technological, organizational, market, fiduciary, legal, compliance, liquidity and credit risks. We have adopted various policies, procedures and systems to monitor and manage these risks.
The types of risk we monitor and seek to manage include, but are not limited to, operational, technological, organizational, market, fiduciary, legal, compliance, liquidity and credit risks. We have adopted various policies, procedures and systems to monitor and manage these risks.
This uncertainty has resulted in considerable volatility in the financial and commodity markets, including through significant increases in the price of oil, natural gas and food and continue putting additional inflationary pressures on central banks, including the FRB.
This uncertainty has resulted in considerable volatility in the financial and commodity markets, including through significant increases in the price of oil, natural gas and food and continue putting additional inflationary pressures on central banks, including the Federal Open Market Committee of the Board of Governors of the Federal Reserve System (“FRB”).
In addition, any material decline in real estate values would weaken our collateral loan-to-value ratios and increase the possibility of loss if a borrower default. 24 Table of Contents OPERATIONS AND BUSINESS RISK We may experience losses related to fraud and theft.
In addition, any material decline in real estate values would weaken our collateral loan-to-value ratios and increase the possibility of loss if a borrower default. OPERATIONS AND BUSINESS RISK We may experience losses related to fraud and theft. OFG has experienced, and may experience in the future, losses incurred due to customer or employee fraud and theft.
Consumer protection laws and the Durbin Amendment may reduce our noninterest income. We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. The Dodd-Frank Act established the Consumer Financial Protection Bureau (“CFPB”) with powers to supervise and enforce federal consumer protection laws.
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. The Dodd-Frank Act established the CFPB with powers to supervise and enforce federal consumer protection laws.
Any of these factors could materially impact our business. 20 Table of Contents Puerto Rico and the USVI are susceptible to earthquakes, hurricanes and major storms, the severity of which could be heightened by the effect of climate change, which could further deteriorate their economy and infrastructure.
Puerto Rico and the USVI are susceptible to earthquakes, hurricanes and major storms, the severity of which could be heightened by the effect of climate change, which could further deteriorate their economy and infrastructure.
Delinquency rates and non-performing assets may increase if Puerto Rico’s economic recession continues or worsens. If there is another decline in economic activity, additional increases in the allowance for credit losses could be necessary with further adverse effects on our profitability.
Delinquency rates and non-performing assets may increase if Puerto Rico’s economy enters into a recession, or if there is a decline in economic activity, additional increases in the ACL could be necessary with further adverse effects on our profitability.
We periodically determine the amount of the allowance based on consideration of several factors such as default frequency, internal loan grades, expected future cash collections, loss recovery rates and general economic factors, among others.
We strive to maintain an appropriate ACL to provide for probable and expected losses inherent in the loan portfolio. We periodically determine the amount of the ACL based on consideration of several factors such as default frequency, internal loan grades, expected future cash collections, loss recovery rates and general economic factors, among others.
In addition, there is no assurance that the government will be able to satisfy its obligations as restructured. Puerto Rico also continues to be vulnerable to hurricanes and earthquakes and may continue to be impacted by natural disasters in the future, including those as a result of climate change.
Puerto Rico also continues to be vulnerable to hurricanes and earthquakes and may continue to be impacted by natural disasters in the future, including those as a result of climate change.
If such assets become impaired, it could have a negative impact on our results of operations. Legislative and other measures that may be taken by Puerto Rico governmental authorities could materially increase our tax burden or otherwise adversely affect our financial condition, results of operations or cash flows.
Legislative and other measures that may be taken by Puerto Rico governmental authorities could materially increase our tax burden or otherwise adversely affect our financial condition, results of operations or cash flows. Legislative changes, particularly changes in local tax laws, could adversely impact our results of operations.
Deterioration in local economic conditions or in the financial condition of an industry on which the local market depends could adversely affect factors such as unemployment rates and real estate vacancy and values.
While Puerto Rico’s economy has been gradually recovering, it still faces economic and fiscal challenges and could face additional economic or fiscal challenges in the future. Deterioration in local economic conditions or in the financial condition of an industry on which the local market depends could adversely affect factors such as unemployment rates and real estate vacancy and values.
Additions to the allowance for credit losses would result in a decrease of net earnings and capital and could hinder our ability to pay dividends. 23 Table of Contents If the economic conditions in Puerto Rico deteriorate, we may experience increased credit costs or need to take greater than anticipated markdowns and make greater than anticipated provisions to increase the allowances for credit losses that could adversely affect our financial condition and results of operations in the future.
If the economic conditions in Puerto Rico or the United States deteriorate, we may experience increased credit costs or need to take greater than anticipated markdowns and make greater than anticipated provisions to increase the ACL that could adversely affect our financial condition and results of operations in the future.
Any such service disruption or degradation could adversely affect the perception of the reliability of our products and services and materially adversely affect our overall business, reputation and results of operations. 25 Table of Contents If sustained or repeated, a failure, denial or termination of such systems or services could result in a deterioration of our ability to process new loans, service existing loans, gather deposits and/or provide customer service.
If sustained or repeated, a failure, denial or termination of such systems or services could result in a deterioration of our ability to process new loans, service existing loans, gather deposits and/or provide customer service.
In the past decades, Puerto Rico has experienced a significant economic contraction in several years, a government fiscal crisis that led to the appointment of a federal oversight board in 2016 and a bankruptcy-type restructuring process of the government’s finances, various significant natural disasters, including hurricanes and earthquakes, as well as the Covid-19 pandemic that began in 2020.
In the past, Puerto Rico has experienced significant economic contraction that persisted over a decade, a government fiscal crisis that led to the appointment of a federal oversight board in 2016 and a bankruptcy-type restructuring process of the government’s finances.
Material additions to the allowance would materially decrease our net income. Our emphasis on the origination of business and retail loans is one of the more significant factors in evaluating our allowance for credit losses.
Material additions to the ACL would materially decrease our net income. Our emphasis on the origination of commercial and retail loans is one of the more significant factors in evaluating our ACL. As we continue to increase the amount of these loans, additional or increased provisions for credit losses may be necessary and as a result would decrease our earnings.
If OFG’s assets were to exceed $10 billion as of December 31 of any calendar year, the Durbin Amendment would reduce OFG’s income from debit card interchange fees by approximately $8 to $10 million on an annual basis in subsequent years based on current volume.
OFG’s assets exceeded $10 billion as of December 31, 2023, and therefore, we estimate that beginning in July 1, 2024, the Durbin Amendment will reduce OFG’s income from debit card interchange fees by approximately $10 to $11 million on an annual basis based on current volume.
OFG continues to invest in fraud prevention in the forms of people and systems designed to prevent, detect and mitigate the customer and financial impacts. We are subject to security and operational risks related to our use of technology, including the risk of cyber-attack or cyber theft.
We are subject to security and operational risks related to our use of technology, including the risk of cyber-attack or cyber theft.
In such circumstances, it may be difficult for us to reduce our risk positions due to the activity of such other market participants. LIQUIDITY RISK Our business could be adversely affected if we cannot maintain access to stable funding sources. Our business requires continuous access to various funding sources.
LIQUIDITY RISK Our business could be adversely affected if we cannot maintain access to stable funding sources. Our business requires continuous access to various funding sources.
We have developed a compliance program reasonably designed to ensure compliance with such laws and regulations. Our failure or the inability to comply with these regulations could result in enforcement actions, fines or penalties, curtailment of expansion opportunities, intervention or sanctions by regulators, costly litigation, or expensive additional internal controls and systems.
Our failure or the inability to comply with these regulations could result in enforcement actions, fines or penalties, curtailment of expansion opportunities, intervention or sanctions by regulators, costly litigation, or expensive additional internal controls and systems. 24 If we are unable to maintain or grow our core deposits, we may be subject to paying higher funding costs and our net interest income may decrease.
There can be no assurance that future evaluations of such goodwill or intangibles will not result in any impairment charges. Among other factors, any declines in our common stock as a result of macroeconomic conditions and any weakness in the Puerto Rico economy could lead to an impairment of such assets.
Among other factors, any declines in our common stock as a result of macroeconomic conditions and any weakness in the Puerto Rico economy could lead to an impairment of such assets. If such assets become impaired, it could have a negative impact on our results of operations.
OFG has experienced, and may experience in the future, losses incurred due to customer or employee fraud and theft. These losses may be material and negatively affect OFG’s results of operations, financial condition or prospects. These losses could also lead to significant reputational risks and other effects.
These losses may be material and negatively affect OFG’s results of operations, financial condition or prospects. These losses could also lead to significant reputational risks and other effects. The sophistication of external fraud actors continues to increase, and in some cases includes large criminal rings, which increases the resources and infrastructure needed to thwart these attacks.
If market interest rates continue to rise, OFG will have competitive pressure to increase the rates on deposits, which could result in a decrease of net interest income. If market interest rates decline, OFG could experience fixed-rate loan prepayments and higher investment portfolio cash flows, resulting in a lower yield on earning assets.
If market interest rates increase or remain higher for longer, OFG will have competitive pressure to increase the rates on its deposits, which could result in a decrease of its net interest income and borrowers of variable rate commercial loans may experience difficulties paying their heightened debt service.
The sophistication of external fraud actors continues to increase, and in some cases includes large criminal rings, which increases the resources and infrastructure needed to thwart these attacks. The industry fraud threat continues to evolve, including but not limited to card fraud, check fraud, social engineering and phishing attacks for identity theft and account takeover.
The industry fraud threat continues to evolve, including but not limited to card fraud, check fraud, social engineering and phishing attacks for identity theft and account takeover. OFG continues to invest in fraud prevention in the forms of people and systems designed to prevent, detect and mitigate the customer and financial impacts.
OFG’s earnings can also be impacted by the spread between short-term and long-term market interest rates. Changes in the method pursuant to which the LIBOR and other benchmark rates are determined could adversely impact our business and results of operations.
If market interest rates decline, OFG could experience lower interest income from its variable rate commercial loans and prepayments or refinancing of higher fixed-rate loans. OFG’s earnings can also be impacted by the spread between short-term and long-term market interest rates.
Removed
In an effort to address inflation, the Federal Open Market Committee of the Board of Governors of the Federal Reserve System (“FRB”) has tightened monetary policy and has increased the federal funds rate seven times during fiscal year 2022, with the latest increases of 50 basis points each made on June 15, 2022, July 27, 2022, September 21, 2022, November 2, 2022 and December 14, 2022.
Added
In addition, there is no assurance that the Puerto Rico government will be able to satisfy its obligations as restructured. Various significant natural disasters, including hurricanes and earthquakes, as well as the Covid-19 pandemic have also impacted Puerto Rico’s economy.
Removed
In February 1, 2023, the FRB furthered increased federal funds rate by 25 basis points updating the federal funds target rate range between 4.50% to 4.75%. We expect that incremental interest rate increases announced by the FRB will continue to occur throughout 2023, but the amount, timing, and frequency of such increases are not fully known at this time.
Added
In an effort to address inflation, the FRB tightened monetary policy and increased the federal funds rate considerably since March 2022 through July 2023. In December 2023, the FRB held interest rates steady at a target rate range between 5.25% to 5.50% and suggested the possibility of rate cuts during 2024.
Removed
Our floating-rate funding, certain hedging transactions and certain of the products that we offer, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as LIBOR, or to an index, or other financial metric.
Added
Notwithstanding FRB’s announcements, the amount, timing, and frequency of any decrease in the federal funds rate are not fully known at this time.
Removed
LIBOR and certain other benchmark rates are the subject of several national, international, and other regulatory guidance and proposals for reform. In July 2017, the Chief Executive of the Financial 21 Table of Contents Conduct Authority (“FCA”) announced that the FCA intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.
Added
Any downgrade in the credit rating of the U.S. government or default by the U.S. government as a result of political conflicts over legislation to raise the U.S. government’s debt limit may have a material adverse effect on OFG.
Removed
However, the administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings until June 30, 2023 and has ceased publishing other LIBOR settings on December 31, 2021. The U.S. federal banking agencies have issued guidance strongly encouraging banking organizations to cease using the U.S.
Added
Recent federal budget deficit concerns and political conflict over legislation to raise the U.S. government’s debt limit have increased the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States.
Removed
Dollar LIBOR as a reference rate in “new” contracts as soon as practicable and in any event by December 31, 2021. It is not possible to predict the effects of any changes in views or the acceptance of alternative rates on the markets for LIBOR-linked financial instruments.
Added
Many of our investment securities are issued by the U.S. government, including certain government agencies and sponsored entities.
Removed
There is considerable uncertainty as to how the financial services industry will address the discontinuance of LIBOR in financial instruments.
Added
As a result of uncertain domestic political conditions, including the possibility of the federal government defaulting on its obligations for a period of time due to debt-ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government may pose liquidity risks.
Removed
Specifically, the discontinuation of LIBOR could result in changes to our risk exposures (for example, if the anticipated discontinuation of LIBOR adversely affects the availability or cost of floating-rate funding and, therefore, our exposure to fluctuations in interest rates) or otherwise result in losses on a product.
Added
In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, Standard & Poor’s lowered its long-term sovereign credit rating on the U.S. from AAA to AA+.
Removed
There can be no assurance that legislative or regulatory actions will dictate what happens if LIBOR ceases or is no longer representative or viable, or what those actions might be.
Added
A downgrade, or a similar action by other rating agencies, in response to current political dynamics, as well as sovereign debt issues facing the governments of other countries, could generally have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide and, therefore, materially adversely affect OFG’s business, financial condition and results of operations.
Removed
Although OFG believes that its exposure to LIBOR is not material, as it represents only 3% of total assets, LIBOR-based contracts that will be impacted by the cessation of LIBOR have been under review to ensure they contain adequate fallback language.
Added
Additions to the ACL would result in a decrease of net earnings and capital and could hinder our ability to pay dividends.
Removed
OFG has discontinued the origination of loans that use LIBOR as a reference rate and also been working to transition to alternative reference rates (“ARR”) and/or fallback language in both existing as well as new contracts to prepare for the cessation of LIBOR.
Added
The ability of our borrowers to repay their obligations may be adversely affected by changes in real estate values or in real estate market dynamics. Commercial real estate valuations in particular are highly subjective, as they are based on many assumptions.
Removed
Furthermore, management has a LIBOR transition team to leads OFG in the execution of its project plan and is monitoring the development and adoption of Secured Overnight Financing Rate (“SOFR”) alternatives as well as other credit sensitive ARR and their liquidity in the market, and provided oversight of business and system readiness to originate SOFR-based loans. 22 Table of Contents CREDIT RISK We are exposed to credit risk in connection with our loans to certain government agencies and municipalities of Puerto Rico, and the restructuring of Puerto Rico government’s debt could adversely affect the value of such loans.
Added
Such valuations can be significantly affected over relatively short periods of time by changes in business climate, economic conditions, demographic and market trends such as the impact of the ongoing shift to online shopping on retail properties or the trend toward remote and hybrid work on office properties.
Removed
At December 31, 2022, we have approximately $73.7 million of direct credit exposure to four Puerto Rico municipalities, a $13.6 million decrease from December 31, 2021. At December 31, 2021, total loan exposure to the Puerto Rico government included a $1.1 million purchased credit-deteriorated (“PCD”) loan granted to a public corporation classified as non-accrual, which was repaid during 2022.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Bank’s management believes that each of its facilities is well maintained and suitable for its purpose and can readily obtain appropriate additional space as may be required at competitive rates by extending expiring leases or finding alternative space.
Biggest changeThe Bank’s management believes that each of its facilities is well maintained and suitable for its purpose and can readily obtain appropriate additional space as may be required at competitive rates by extending expiring leases or finding alternative space. 29 At December 31, 2023, the aggregate future rental commitments under the terms of its leases, exclusive of taxes, insurance and maintenance expenses payable by OFG, was approximately $24.0 million.
ITEM 2. PROPERTIES At December 31, 2022, OFG owns a fifteen-story office building located at 254 Muñoz Rivera Avenue, San Juan, Puerto Rico, known as “Oriental Center”, where its executive offices are located. OFG operates a full-service branch at the plaza level and its centralized units and subsidiaries occupy approximately 99% of the office floor space.
ITEM 2. PROPERTIES At December 31, 2023, OFG owns a fifteen-story office building located at 254 Muñoz Rivera Avenue, San Juan, Puerto Rico, known as “Oriental Center”, where its executive offices are located. OFG operates a full-service branch at the plaza level and its centralized units and subsidiaries occupy approximately 99% of the office floor space.
Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on OFG’s financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 30 Table of Contents PART II
Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on OFG’s financial condition or results of operations. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Approximately 1% of the office space is leased to outside tenants. In addition, at December 31, 2022, the Bank owns three branch premises and leases thirty-eight branch locations throughout Puerto Rico and owns two branch premises in the USVI.
Approximately 1% of the office space is leased to outside tenants. In addition, at December 31, 2023, the Bank owns three branch premises and leases thirty-nine branch locations throughout Puerto Rico and owns two branch premises in the USVI.
LEGAL PROCEEDINGS OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. OFG is vigorously contesting such claims.
OFG’s investment in premises and equipment, exclusive of leasehold improvements at December 31, 2023, was $160.8 million, gross of accumulated depreciation. 30 ITEM 3 . LEGAL PROCEEDINGS OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. OFG is vigorously contesting such claims.
Removed
At December 31, 2022, the aggregate future rental commitments under the terms of its leases, exclusive of taxes, insurance and maintenance expenses payable by OFG, was approximately $27.4 million. OFG’s investment in premises and equipment, exclusive of leasehold improvements at December 31, 2022, was $161.0 million, gross of accumulated depreciation. ITEM 3 .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−2 removed2 unchanged
Biggest changeComparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 31 Table of Contents Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 OFG Bancorp 100.00 178.29 259.12 207.84 302.69 322.48 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 SNL Bank 100.00 83.54 114.74 100.10 136.10 112.89 Dividends You can find dividend information concerning our common stock in Table 17 of Item 7 in this annual report on Form 10-K and our Consolidated Statements of Shareholders’ Equity in our consolidated financial statements accompanying this annual report on Form 10-K.
Biggest changeThe cumulative total stockholder return was obtained by dividing (a) the sum of (i) the cumulative amount of dividends per share, assuming dividend reinvestment, for the measurement period beginning December 31, 2018, and (ii) the difference between the share price at the beginning and the end of the measurement period, by (b) the share price at the beginning of the measurement period. 31 Comparison of 5 Year Cumulative Total Return Assumes Initial Investment of $100 Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 OFG Bancorp 100.00 145.34 116.58 169.77 180.87 253.63 Russell 2000 100.00 125.53 150.58 172.90 137.56 160.85 S&P US BMI Banks Index 100.00 137.36 119.83 162.92 135.13 147.41 Dividends You can find dividend information concerning our common stock in Table 16 of Item 7 in this annual report on Form 10-K and our Consolidated Statements of Shareholders’ Equity in our consolidated financial statements accompanying this annual report on Form 10-K.
For information on dividend restrictions, see “Dividend Restrictions” under “Regulation and Supervision” in Item 1 of this annual report on Form 10-K and “Note 30– OFG Bancorp (Holding Company Only) Financial Information” to o ur consolidated financial statements included herein .
For information on dividend restrictions, see “Dividend Restrictions” under “Regulation and Supervision” in Item 1 of this annual report on Form 10-K and “Note 29 - OFG Bancorp (Holding Company Only) Financial Information” to our consolidated financial statements included herein.
As of December 31, 2022, OFG had approximately 12,641 holders of record of its common stock, including all directors and officers of OFG, and beneficial owners whose shares are held in “street” name by securities broker-dealers or other nominees.
As of December 31, 2023, OFG had approximately 14,694 holders of record of its common stock, including all directors and officers of OFG, and beneficial owners whose shares are held in “street” name by securities broker-dealers or other nominees.
Stock Performance Graph The stock performance graph below compares the percentage change in OFG’s cumulative total stockholder return during the measurement period with the cumulative total return, assuming reinvestment of dividends, of the Russell 2000 Index and the SNL Bank Index.
Stock Performance Graph The stock performance graph below compares the percentage change in OFG’s cumulative total stockholder return during the measurement period with the cumulative total return, assuming reinvestment of dividends, of the Russell 2000 Index and the S&P US BMI Banks Index.
Equity Based Compensation For information about the securities remaining available for issuance under our equity-based plans, refer to Part III, Item 12 of this annual report on Form 10-K. Repurchase of Common Stock Refer to “Recent Developments—Capital Actions” in Part II, Item 7 of this annual report on Form 10-K for information regarding OFG’s common stock repurchase programs.
Equity Based Compensation For information about the securities remaining available for issuance under our equity-based plans, refer to Part III, Item 12 of this annual report on Form 10-K. Repurchase of Common Stock OFG did not repurchase any shares of its common stock during the quarter ended December 31, 2023.
Removed
The cumulative total stockholder return was obtained by dividing (a) the sum of (i) the cumulative amount of dividends per share, assuming dividend reinvestment, for the measurement period beginning December 31, 2017, and (ii) the difference between the share price at the beginning and the end of the measurement period, by (b) the share price at the beginning of the measurement period.
Added
Refer to "Recent Developments-Capital Actions" in Part II, Item 7 of this annual report on Form 10-K for information regarding OFG's common stock repurchase programs. ITEM 6. RESERVED 32
Removed
OFG did not repurchase any shares of its common stock during the quarter ended December 31, 2022. ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

98 edited+46 added−75 removed24 unchanged
Biggest changeThe fourth quarter of 2022 annual insurance commission recognition of $1.0 million was $1.2 million lower than a year ago due to Hurricane Fiona-related claims. 37 Table of Contents Selected income statement and balance sheet data and key performance indicators are presented in the tables below: OFG Bancorp FINANCIAL OVERVIEW YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 Year Ended December 31, 2022 2021 2020 EARNINGS DATA: (In thousands, except per share data) Interest income $ 515,573 $ 449,199 $ 473,347 Interest expense 33,493 41,829 64,915 Net interest income 482,080 407,370 408,432 Provision for credit losses 24,119 221 92,672 Net interest income after provision for credit losses 457,961 407,149 315,760 Non-interest income 131,690 133,210 124,352 Non-interest expenses 345,546 325,756 345,286 Income before taxes 244,105 214,603 94,826 Income tax expense 77,866 68,452 20,499 Net income 166,239 146,151 74,327 Less: dividends on preferred stock — (1,255) (6,512) Income available to common shareholders $ 166,239 $ 144,896 $ 67,815 PER SHARE DATA: Basic $ 3.46 $ 2.85 $ 1.32 Diluted $ 3.44 $ 2.81 $ 1.32 Average common shares outstanding 48,033 50,956 51,358 Average common shares outstanding and equivalents 48,436 51,370 51,555 Cash dividends declared per common share $ 0.70 0.40 0.28 Cash dividends declared on common shares $ 33,593 20,505 14,381 PERFORMANCE RATIOS: Return on average assets (ROA) 1.64 % 1.42 % 0.77 % Return on average tangible common stockholders’ equity 17.98 % 15.70 % 8.10 % Return on average common equity (ROE) 15.95 % 13.80 % 6.96 % Equity-to-assets ratio 10.62 % 10.80 % 11.05 % Efficiency ratio 56.85 % 60.70 % 66.49 % Interest rate spread 5.02 % 4.18 % 4.51 % Interest rate margin 5.05 % 4.20 % 4.55 % 38 Table of Contents December 31, 2022 2021 2020 PERIOD END BALANCES AND CAPITAL RATIOS: (In thousands, except per share data) Investments and loans Investment securities $ 1,971,522 $ 895,818 $ 458,700 Loans, net 6,723,236 6,329,311 6,501,259 Total investments and loans $ 8,694,758 $ 7,225,129 $ 6,959,959 Deposits and borrowings Deposits $ 8,568,364 $ 8,603,118 $ 8,415,640 Other borrowings 27,034 64,571 102,351 Total deposits and borrowings $ 8,595,398 $ 8,667,689 $ 8,517,991 Stockholders’ equity Preferred stock $ — $ — $ 92,000 Common stock 59,885 59,885 59,885 Additional paid-in capital 636,793 637,061 622,652 Legal surplus 133,901 117,677 103,269 Retained earnings 516,371 399,949 300,096 Treasury stock, at cost (211,135) (150,572) (102,949) Accumulated other comprehensive (loss) income (93,409) 5,160 11,022 Total stockholders’ equity $ 1,042,406 $ 1,069,160 $ 1,085,975 Per share data Book value per common share $ 21.91 $ 21.54 $ 19.54 Tangible book value per common share $ 19.56 $ 19.08 $ 16.97 Market price $ 27.56 $ 26.56 $ 18.54 Capital ratios Leverage capital 10.36 % 9.69 % 10.30 % Common equity Tier 1 capital 13.64 % 13.77 % 13.08 % Tier 1 risk-based capital 13.64 % 14.27 % 14.78 % Total risk-based capital 14.89 % 15.52 % 16.04 % Financial assets managed Trust assets managed $ 2,334,672 $ 3,758,895 $ 3,476,491 Broker-dealer assets gathered 2,172,116 2,466,004 2,474,234 Total assets managed $ 4,506,788 $ 6,224,899 $ 5,950,725 39 Table of Contents ANALYSIS OF RESULTS OF OPERATIONS The following tables show major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates for 2022 and 2021.
Biggest changeThe fourth quarter of 2023 Tangible Book Value reflected increased retained earnings and accumulated other comprehensive income. 36 Selected income statement and balance sheet data and key performance indicators are presented in the tables below: Year Ended December 31, 2023 2022 2021 EARNINGS DATA: (In thousands, except per share data) Interest income $ 648,880 $ 515,573 $ 449,199 Interest expense 88,010 33,493 41,829 Net interest income 560,870 482,080 407,370 Provision for credit losses 60,638 24,119 221 Net interest income after provision for credit losses 500,232 457,961 407,149 Non-interest income 128,381 131,690 133,210 Non-interest expenses 363,365 345,546 325,756 Income before taxes 265,248 244,105 214,603 Income tax expense 83,376 77,866 68,452 Net income 181,872 166,239 146,151 Less: dividends on preferred stock — — (1,255) Income available to common shareholders $ 181,872 $ 166,239 $ 144,896 PER SHARE DATA: Basic $ 3.85 $ 3.46 $ 2.85 Diluted $ 3.83 $ 3.44 $ 2.81 Average common shares outstanding 47,258 48,033 50,956 Average common shares outstanding and equivalents 47,552 48,436 51,370 Cash dividends declared per common share $ 0.88 0.70 0.40 Cash dividends declared on common shares $ 41,853 33,593 20,505 PERFORMANCE RATIOS: Return on average assets (ROA) 1.79 % 1.64 % 1.42 % Return on average tangible common stockholders’ equity 18.14 % 17.98 % 15.70 % Return on average common equity (ROE) 16.37 % 15.95 % 13.80 % Efficiency ratio 53.22 % 56.85 % 60.70 % Interest rate spread 5.71 % 5.02 % 4.18 % Interest rate margin 5.79 % 5.05 % 4.20 % 37 December 31, 2023 2022 2021 PERIOD END BALANCES AND CAPITAL RATIOS: (In thousands, except per share data) Investments and loans Investment securities $ 2,686,770 $ 1,971,522 $ 895,818 Loans, net 7,401,618 6,723,236 6,329,311 Total investments and loans $ 10,088,388 $ 8,694,758 $ 7,225,129 Deposits and borrowings Deposits $ 9,762,169 $ 8,568,364 $ 8,603,118 Borrowings 200,770 27,034 64,571 Total deposits and borrowings $ 9,962,939 $ 8,595,398 $ 8,667,689 Stockholders’ equity Common stock 59,885 59,885 59,885 Additional paid-in capital 638,667 636,793 637,061 Legal surplus 150,967 133,901 117,677 Retained earnings 639,324 516,371 399,949 Treasury stock, at cost (228,350) (211,135) (150,572) Accumulated other comprehensive loss (67,013) (93,409) 5,160 Total stockholders’ equity $ 1,193,480 $ 1,042,406 $ 1,069,160 Per share data Book value per common share $ 25.36 $ 21.91 $ 21.54 Tangible book value per common share $ 23.13 $ 19.56 $ 19.08 Market price $ 37.48 $ 27.56 $ 26.56 Capital ratios Leverage capital 11.03 % 10.36 % 9.69 % Common equity Tier 1 capital 14.12 % 13.64 % 13.77 % Tier 1 risk-based capital 14.12 % 13.64 % 14.27 % Total risk-based capital 15.37 % 14.89 % 15.52 % Financial assets managed Trust assets managed $ 2,511,880 $ 2,334,672 $ 3,758,895 Broker-dealer assets managed 2,446,281 2,172,116 2,466,004 Total assets managed $ 4,958,161 $ 4,506,788 $ 6,224,899 ANALYSIS OF RESULTS OF OPERATIONS The following tables show major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates for 2023 and 2022. 38 TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Interest Average rate Average balance December 2023 December 2022 December 2023 December 2022 December 2023 December 2022 (Dollars in thousands) A - TAX EQUIVALENT SPREAD Interest-earning assets $ 648,880 515,573 6.70 % 5.40 % $ 9,688,019 $ 9,544,055 Tax equivalent adjustment 16,061 14,679 0.17 % 0.15 % — — Interest-earning assets - tax equivalent 664,941 530,252 6.87 % 5.55 % 9,688,019 9,544,055 Interest-bearing liabilities 88,010 33,493 0.99 % 0.38 % 8,903,725 8,902,427 Tax equivalent net interest income / spread 576,931 496,759 5.88 % 5.17 % 784,294 641,628 Tax equivalent interest rate margin 6.05 % 5.32 % B - NORMAL SPREAD Interest-earning assets: Investments: Investment securities 62,730 40,722 3.23 % 2.55 % 1,940,776 1,594,662 Interest bearing cash and money market investments 31,406 14,689 5.02 % 1.14 % 626,067 1,291,633 Total investments 94,136 55,411 3.67 % 1.92 % 2,566,843 2,886,295 Non-PCD loans Mortgage loans 34,442 36,881 5.54 % 5.42 % 621,382 680,768 Commercial loans 201,260 138,715 7.69 % 5.90 % 2,617,240 2,349,114 Consumer loans 70,197 58,181 11.42 % 11.28 % 614,902 515,781 Auto loans 176,144 147,557 8.30 % 8.17 % 2,122,997 1,805,976 Total Non-PCD loans 482,043 381,334 8.07 % 7.13 % 5,976,521 5,351,639 PCD loans Mortgage loans 60,434 66,610 6.16 % 6.02 % 980,564 1,106,708 Commercial loans 11,764 11,112 7.35 % 5.86 % 160,001 189,606 Consumer loans 109 155 14.99 % 14.03 % 727 1,102 Auto loans 394 951 11.72 % 10.94 % 3,363 8,705 Total PCD loans 72,701 78,828 6.35 % 6.04 % 1,144,655 1,306,121 Total loans (1) 554,744 460,162 7.79 % 6.91 % 7,121,176 6,657,760 Total interest-earning assets $ 648,880 515,573 6.70 % 5.40 % $ 9,688,019 $ 9,544,055 39 Interest Average rate Average balance December 2023 December 2022 December 2023 December 2022 December 2023 December 2022 (Dollars in thousands) Interest-bearing liabilities: Deposits: NOW Accounts 25,710 11,291 1.03 % 0.41 % 2,489,560 2,761,653 Savings accounts 17,727 6,470 0.80 % 0.28 % 2,214,256 2,306,607 Time deposits 25,225 7,943 1.92 % 0.69 % 1,315,745 1,143,469 Non-interest bearing deposits — — — % — % 2,590,523 2,647,871 Total core deposits 68,662 25,704 0.80 % 0.29 % 8,610,084 8,859,600 Fair value premium and core deposit intangible amortizations 5,283 6,500 — % — % — — Brokered deposits 2,020 35 5.16 % 0.30 % 39,100 11,366 Total deposits 75,965 32,239 0.88 % 0.36 % 8,649,184 8,870,966 Borrowings: Securities sold under agreements to repurchase 3,306 — 5.55 % — % 59,541 — Advances from FHLB and other borrowings 8,739 733 4.48 % 2.67 % 195,000 27,497 Subordinated capital notes — 521 — % 13.15 % — 3,964 Total borrowings 12,045 1,254 4.73 % 3.99 % 254,541 31,461 Total interest-bearing liabilities 88,010 33,493 0.99 % 0.38 % 8,903,725 8,902,427 Net interest income / spread $ 560,870 $ 482,080 5.71 % 5.02 % Interest rate margin 5.79 % 5.05 % Excess of average interest-earning assets over average interest-bearing liabilities $ 784,294 $ 641,628 Average interest-earning assets to average interest-bearing liabilities ratio 108.81 % 107.21 % (1) Includes loans held for sale and excludes allowance for credit losses.
In order to apply for any of our loan modification programs, if the borrower is active in Chapter 13 bankruptcy, it must request an authorization from the bankruptcy trustee to allow for the loan modification. Borrowers with discharged Chapter 7 bankruptcies may also apply.
In order to apply for any of our loan modification programs, if the borrower is active in Chapter 13 bankruptcy, it must request an authorization from the bankruptcy trustee to allow the loan modification. Borrowers with discharged Chapter 7 bankruptcies may also apply.
During 2021, OFG repurchased 2,052,429 shares under the $50.0 million repurchase program approved at that time for a total of $49.9 million, at an average price of $24.29 per share. OFG did not repurchase any shares of its common stock during 2022 and 2021, other than through its publicly announced stock repurchase program.
During 2021, OFG repurchased 2,052,429 shares under the $50.0 million repurchase program approved at that time for a total of $49.9 million, at an average price of $24.29 per share. OFG did not repurchase any shares of its common stock during 2023, 2022 and 2021, other than through its publicly announced stock repurchase program.
Non-PCD auto loans and leases are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. OFG has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-Conforming Mortgage Loan Program.
Non-PCD auto loans are placed on non-accrual status when they become 90 days past due, partially written-off to collateral value when payments are delinquent 120 days, and fully written-off when payments are delinquent 180 days. OFG has two mortgage loan modification programs. These are the Loss Mitigation Program and the Non-Conforming Mortgage Loan Program.
As of December 31, 2022, the capital ratios of OFG and the Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules. On January 1, 2020, OFG implemented CECL using the modified retrospective approach, with an impact to capital of $25.5 million, net of its corresponding deferred tax effect.
As of December 31, 2023, the capital ratios of OFG and the Bank continue to exceed the minimum requirements for being “well-capitalized” under the Basel III capital rules. On January 1, 2020, OFG implemented CECL using the modified retrospective approach, with an impact to capital of $25.5 million, net of its corresponding deferred tax effect.
These hypothetical sensitivities do not incorporate the impact of management’s judgment for qualitative factors applied in the current ACL for loans. It is possible that others performing similar sensitivity analyses could reach different conclusions or results. The sensitivity analysis excludes the allowance for credit losses for off-balance sheet credit exposures.
These hypothetical sensitivities do not incorporate the impact of management’s judgment for qualitative factors applied in the current ACL for loans. It is possible that others performing similar sensitivity analyses could reach different conclusions or results. The sensitivity analysis excludes the ACL for off-balance sheet credit exposures.
Management selects the macroeconomic forecast that is most reflective of expectations at that point in time. The applicability of qualitative adjustments includes adjustments of inherent risk not captured by the quantitative model. OFG’s sensitivity analysis does not represent management’s view of expected credit losses at December 31, 2022.
Management selects the macroeconomic forecast that is most reflective of expectations at that point in time. The applicability of qualitative adjustments includes adjustments of inherent risk not captured by the quantitative model. OFG’s sensitivity analysis does not represent management’s view of expected credit losses at December 31, 2023.
Goodwill OFG’s goodwill is not amortized to expense but is tested at least annually for impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, OFG determines that the existence of events and circumstances indicates that it is more likely than not that goodwill is not impaired.
Goodwill OFG’s goodwill is not amortized to expense but is tested at least annually for impairment. A quantitative annual impairment test is not required if, based on a qualitative analysis, OFG determines that the existence of events and circumstances indicate that it is more likely than not that goodwill is not impaired.
For our discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 annual report on Form 10-K.
For our discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2022 annual report on Form 10-K.
Moreover, the manner in which OFG calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names. 64 Table of Contents Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.
Moreover, the manner in which OFG calculates its tangible common equity, tangible assets and any other related measures may differ from that of other companies reporting measures with similar names. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.
We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Item 7 of our 2021 annual report on Form 10-K.
We have omitted discussion of 2021 results where it would be redundant to the discussion previously included in Item 7 of our 2022 annual report on Form 10-K.
OFG evaluated sensitivities by applying 100% weight to baseline and moderate recession scenarios. The impact of assigning a 100% weight to the baseline scenario was a hypothetical decrease of 3% to the collective ACL, and the impact of assigning a 100% weight to the moderate recession scenario was a hypothetical increase of 6% to the collective ACL.
OFG evaluated sensitivities by applying 100% weight to baseline and moderate recession scenarios. The impact of assigning a 100% weight to the baseline scenario was a hypothetical decrease of 4% to the collective ACL, and the impact of assigning a 100% weight to the moderate recession scenario was a hypothetical increase of 6% to the collective ACL.
OFG follows a conservative residential mortgage lending policy with more than 90% of its residential mortgage portfolio consisting of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk associated with subprime loans offered by certain major U.S. mortgage loan originators.
OFG follows a conservative residential mortgage lending policy with more than 90% of its residential mortgage portfolio consisting of fixed-rate, fully amortizing, fully documented loans that do not have the level of risk associated with subprime loans offered by certain major US mortgage loan originators.
At December 31, 2022, the allowance coverage ratio to non-performing loans was 152.9% (139.2% at December 31, 2021). Upon adoption of the current expected credit losses (“CECL”) methodology, 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.
At December 31, 2023, the allowance coverage ratio to non-performing loans was 189.1% (152.9% at December 31, 2022). Upon adoption of the current expected credit losses (“CECL”) methodology, 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.
Significant changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience, and in the condition of the various markets in which collateral may be sold may all affect the required level of the allowance for credit losses. Consequently, the business, financial condition, liquidity, capital and results of operations could also be affected.
Significant changes in the financial condition of individual borrowers, in economic conditions, in historical loss experience, and in the condition of the various markets in which collateral may be sold may all affect the required level of the ACL. Consequently, the business, financial condition, liquidity, capital and results of operations could also be affected.
After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over a three-year period.
After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL are being phased out of CET1 capital over a three-year period.
At December 31, 2022, total assets gathered by the securities broker-dealer and insurance agency subsidiaries from their customers’ investment accounts amounted to $2.172 billion, compared to $2.466 billion at December 31, 2021. Changes in trust and broker-dealer related assets also reflect changes in portfolio balances and differences in market value resulting from the increase in interest rates.
At December 31, 2023, total assets managed by the securities broker-dealer and insurance agency subsidiaries from their customers’ investment accounts amounted to $2.446 billion, compared to $2.172 billion at December 31, 2022. Changes in trust and broker-dealer related assets also reflect changes in portfolio balances and differences in market value resulting from the increase in interest rates.
At December 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 $145.2 million and $125.9 million, respectively, as they were performing under their modified terms.
At December 31, 2022, loans whose terms have been extended and which were classified as Troubled Debt Restructurings (TDR’s) that were not included in non-accrual loans amounted to $145.2 million as they were performing under their modified terms.
Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $32.6 million and $14.5 million at December 31, 2022 and December 31, 2021, respectively. Under the GNMA program, issuers such as OFG have the option but not the obligation to repurchase loans that are 90 days or more past due.
Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $19.4 million and $32.6 million at December 31, 2023 and 2022, respectively. Under the GNMA program, issuers such as OFG have the option but not the obligation to repurchase loans that are 90 days or more past due.
In developing its assessment of the adequacy of the allowance for credit losses, OFG must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets.
In developing its assessment of the adequacy of the ACL, OFG must rely on estimates and exercise judgment regarding matters where the ultimate outcome is unknown, such as economic developments affecting specific customers, industries or markets.
For PCD loans, the expected cash flows are calculated for each loan pool, pool reserve is calculated 34 Table of Contents by the aggregation of total loss from the UDCF. Expected cash flows are resulted from applying the contractual payment term, probability of defaults, loss given defaults, and prepayment assumptions.
For PCD loans, the expected cash flows are calculated for each loan pool, pool reserve is calculated by aggregating total loss from the UDCF. Expected cash flows are resulted from applying the contractual payment term, probability of defaults, loss given defaults, and prepayment assumptions.
During the two-year delay, OFG added back to common equity tier 1 (“CET1”) capital 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts).
During the two-year delay, OFG added back to common equity tier 1 (“CET1”) capital 100% of the initial adoption impact of CECL plus 25% of the cumulative quarterly changes in the ACL (i.e., quarterly transitional amounts).
The Allowance for Credit Losses (“ACL”) estimation requires management to use relevant forward-looking economic forecasts, by using variables such as unemployment rate, gross national product, retail sales, and house price index, including in the application of reasonable and supportable forecasts. ACL estimations are performed by aggregating loans with similar risk characteristics.
The ACL estimation requires management to use relevant forward-looking economic forecasts, by using variables such as employment and unemployment rate, gross national product (“GNP”), retail sales, and house price index, including in the application of reasonable and supportable forecasts. ACL estimations are performed by aggregating loans with similar risk characteristics.
Furthermore, OFG has never been active in negative amortization loans or offered adjustable-rate mortgage loans with teaser rates. • Consumer loan portfolio amounted to $537.3 million (7.9% of the gross loan portfolio) compared to $409.7 million (6.4% of the gross loan portfolio) at December 31, 2021.
Furthermore, OFG has never been active in negative amortization loans or offered adjustable-rate mortgage loans with teaser rates. • Consumer loan portfolio amounted to $620.4 million (8.2% of the gross loan portfolio) compared to $537.3 million (7.9% of the gross loan portfolio) at December 31, 2022.
As such, for PCD loans the determination of nonaccrual or accrual status is made at the pool level, not the individual loan level. Upon adoption of CECL, the allowance for credit losses was determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis.
As such, for PCD loans the determination of nonaccrual or accrual status is made at the pool level, not the individual loan level. The ACL was determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis.
Foreclosed real estate decreased from $15.0 million at December 31, 2021 to $11.2 million at December 31, 2022 and other repossessed assets increased from $1.9 million at December 31, 2021 to $4.6 million at December 31, 2022, both recorded at fair value. OFG does not expect non-performing loans to result in significantly higher losses.
Foreclosed real estate decreased from $11.2 million at December 31, 2022 to $10.8 million at December 31, 2023 and other repossessed assets decreased from $4.6 million at December 31, 2022 to $4.0 million at December 31, 2023, both recorded at fair value. OFG does not expect non-performing loans to result in significantly higher losses.
Announcement of Forthcoming 2023 Capital Actions In January 2023, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.22 per common share from $0.20 per share, beginning on the quarter ending March 31, 2023.
RECENT DEVELOPMENTS Capital Actions 2023 Capital Actions In January 2023, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.22 per common share from $0.20 per share, beginning in the quarter ended March 31, 2023.
OFG applied a discounted cash flow (DCF) method for non-purchased credit deteriorated loans (non-PCD) and an undiscounted cash flow (UDCF) method for purchased credit deteriorated (PCD) loans to determine the allowance for credit losses for loans collectively measured for impairment, except for credit cards and overdrafts which utilize a remaining life methodology.
OFG applied a discounted cash flow (“DCF”) method for non-purchased credit deteriorated loans (non-PCD) and an undiscounted cash flow (“UDCF”) method for purchased credit deteriorated (PCD) loans to determine the ACL for loans collectively measured for impairment, except for credit cards and overdrafts which utilize a remaining life methodology.
The shares of common stock repurchased are held by OFG as treasury shares. During 2022, OFG repurchased 2,351,868 shares for a total of $64.1 million at an average price of $27.26 per share.
The shares of common stock repurchased are held by OFG as treasury shares. During 2023, OFG repurchased 743,699 shares for a total of $18.7 million at an average price of $25.08 per share. During 2022, OFG repurchased 2,351,868 shares for a total of $64.1 million, at an average price of $27.26 per share.
For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on our financial statements with an offsetting liability. Mortgage loan production totaled $200.9 million in 2022, which represents a decrease of 44.8% from $364.2 million in 2021.
For accounting purposes, these loans subject to the repurchase option are required to be reflected (rebooked) on our financial statements with an offsetting liability. Mortgage loan production totaled $133.0 million in 2023 which represents a decrease of 34% from $200.9 million in 2022.
The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. Deposits from the Puerto Rico government totaled $284.2 million at December 31, 2022.
The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. Deposits from the Puerto Rico government totaled $1,616.3 million at December 31, 2023.
Credit Risk Management Allowance for Credit Losses OFG measures its allowance for credit losses based on management’s best estimate of future expected credit losses inherent in OFG’s relevant financial assets. 51 Table of Contents Tables 9 through 12 set forth an analysis of activity in the allowance for credit losses and present selected credit loss statistics for 2022 and 2021 and as of December 31, 2022 and December 31, 2021.
Allowance for Credit Losses (“ACL”) OFG measures its ACL based on management’s best estimate of expected credit losses inherent in OFG’s relevant financial assets. Tables 9 through 12 set forth an analysis of activity in the ACL and present selected credit loss statistics for 2023 and 2022 and as of December 31, 2023 and 2022.
Comparison of the years ended December 31, 2022 and 2021 OFG recorded non-interest income in the amount of $131.7 million, compared to $133.2 million, a decrease of 1.1%, or $1.5 million.
Comparison of the years ended December 31, 2023 and 2022 OFG recorded non-interest income in the amount of $128.4 million, compared to $131.7 million, a decrease of 2.5%, or $3.3 million.
The following items comprise non-performing loans held for investment, including Non-PCD and PCDs: Commercial loans - At December 31, 2022, OFG’s non-performing commercial loans amounted to $43.4 million (43.4% of OFG’s non-performing loans), a 13.5% decrease from $50.1 million at December 31, 2021 (44.8% of OFG’s non-performing loans).
The following items comprise non-performing loans held for investment, including Non-PCD and PCDs: Commercial loans - At December 31, 2023, OFG’s non-performing commercial loans amounted to $42.5 million (49.9% of OFG’s non-performing loans), a 1.9% decrease from $43.4 million at December 31, 2022 (43.4% of OFG’s non-performing loans).
We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management's historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates.
These estimates are based on management's historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates.
OFG constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels. Comparison of the years ended December 31, 2022 and 2021 Net interest income of $482.1 million increased by $74.7 million from $407.4 million.
OFG constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels. Comparison of the years ended December 31, 2023 and 2022 Net interest income of $560.9 million increased by $78.8 million from $482.1 million.
As of December 31, 2022, OFG had $84.2 million of goodwill allocated as follows: $84.1 million to the banking segment and $0.1 million to the wealth management segment. As of 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.
As of both December 31, 2023 and 2022, OFG had $84.2 million of goodwill allocated as follows: $84.1 million to the banking segment and $100 thousand to the wealth management segment.
At December 31, 2022 and 2021, total commercial non-accrual loans excludes $16.4 million and $9.9 million, respectively, of non-accrual commercial loans held for sale.
At December 31, 2023 and 2022, total commercial non-accrual loans excluded $6.4 million and $16.4 million, respectively, of non-accrual commercial loans held for sale.
This increase reflects an increase of 76 basis points in the total average yield of interest-earning assets and a reduction in the average cost of interest-bearing liabilities of 8 basis points.
This increase reflects an increase of 130 and 61 basis points, respectively, in the total average yield of interest-earning assets and the average cost of interest-bearing liabilities.
TABLE 8 - PUERTO RICO GOVERNMENT RELATED LOANS December 31, 2022 Maturity Carrying Value Less than 1 Year 1 to 3 Years More than 3 Years Loans: (In thousands) Municipalities $ 73,686 $ 8,460 $ 24,157 $ 41,069 At December 31, 2022, OFG has $73.7 million of direct credit exposure to the Puerto Rico government, a $13.6 million decrease from December 31, 2021.
TABLE 8 - PUERTO RICO GOVERNMENT RELATED LOANS December 31, 2023 Maturity Carrying Value Less than 1 Year 1 to 3 Years More than 3 Years Loans: (In thousands) Municipalities $ 68,557 $ — $ 2,030 $ 66,527 At December 31, 2023, OFG has $68.6 million of direct credit exposure to the Puerto Rico government, a $5.1 million decrease from $73.7 million in December 31, 2022.
Please refer to the “Provision for Credit Losses” and “Critical Accounting Policies and Estimates” sections in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this annual report on Form 10-K and “Note 7 – Allowance for Credit Losses” of the accompanying consolidated financial statements for a more detailed analysis of provisions and allowance for credit losses.
Please refer to the “Provision for Credit Losses” and “Critical Accounting Policies and Estimates” sections in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this annual report on Form 10-K and “Note 6 – Allowance for Credit Losses” of the accompanying consolidated financial statements for a more detailed analysis of provisions and ACL. 50 Non-performing Assets OFG’s non-performing assets include non-performing loans, foreclosed real estate, and other repossessed assets (see Tables 13 and 15).
At December 31, 2022 the number of shares that may yet be purchased under the $100 million stock buyback program is estimated at 1,302,242 and was calculated by dividing the remaining balance of $35.9 million by $27.56 (closing price of OFG’s common stock at December 31, 2022).
At December 31, 2023 the number of shares that may yet be purchased under the $100 million stock buyback program is estimated at 459,898 and was calculated by dividing the remaining balance of $17.2 million by $37.48 (closing price of OFG’s common stock at December 31, 2023). 65
A discussion of OFG’s significant accounting policies, including further discussion of the accounting estimate described below, can be found in “Note 1– Summary of Significant Accounting Policies” to the consolidated financial statements and should be read in conjunction with this section.
A discussion of OFG’s significant accounting policies, including further discussion of the accounting estimate described below, can be found in “Note 1– Summary of Significant Accounting Policies” to the consolidated financial statements and should be read in conjunction with this section. 33 Allowance for Credit Losses related to loans collectively evaluated for impairment The most critical and complex accounting estimate is associated with the determination of the ACL.
Management’s judgment is required in selecting the macroeconomic scenarios and the weighting of the economic scenarios, which consist of baseline and moderate recession scenarios, giving more weight to the baseline scenario, except for the US loan segment that used the same level of probability in both economic scenarios, as of December 31, 2022.
Management’s judgment is required in selecting the macroeconomic scenarios and the weighting of the economic scenarios, which consist of baseline and moderate recession scenarios. As of December 31, 2023, management gave more weight to the baseline scenario, except for the US loan segment where the moderate recession scenario was given a greater weight.
Consumer loan production increased 69.8% to $334.2 million in 2022 from $196.8 million in 2021. • Auto loans and leasing portfolio amounted to $1.964 billion (28.7% of the gross loan portfolio) compared to $1.706 billion (26.6% of the gross originated loan portfolio) at December 31, 2021.
Consumer loan production decreased 6% to $313.6 million in 2023 from $334.2 million in 2022. • Auto loans portfolio amounted to $2.274 billion (30.3% of the gross loan portfolio) compared to $1.964 billion (28.7% of the gross originated loan portfolio) at December 31, 2022.
Tax equivalent basis net interest income of $496.8 million increased $80.1 million, or 19.2%, from $416.7 million. Interest rate spread increased by 84 basis points to 5.02% from 4.18% and net interest margin increased 85 basis points to 5.05% from 4.20%.
Tax equivalent basis net interest income of $576.9 million increased $80.2 million, or 16.1%, from $496.8 million. Interest rate spread increased by 69 basis points to 5.71% from 5.02% and net interest margin increased 74 basis points to 5.79% from 5.05%.
Pre-provision net revenues were $76.9 million compared to $69.6 million in the third quarter of 2022 and $55.8 million in the fourth quarter of 2021. Provision for credit losses of $8.8 million compared to $7.1 million in the third quarter of 2022 and $7.2 million in the fourth quarter of 2021.
Pre-provision net revenues of $88.2 million compared to $82.3 million in the third quarter of 2023 and $76.9 million in the fourth quarter of 2022. Total provision for credit losses of $19.7 million compared to $16.4 million in the third quarter of 2023 and $8.8 million in the fourth quarter of 2022.
OFG’s loans held-for-investment portfolio composition and trends were as follows: • Commercial loan portfolio amounted to $2.630 billion (38.5% of the gross loan portfolio) compared to $2.379 billion (37.2% of the gross loan portfolio) at December 31, 2021. Commercial loan production, excluding PPP loans, decreased by 3.7%, or $38.1 million, to $990.3 million in 2022 from $1.028 billion in 2021.
The composition and trends of OFG’s loans held-for-investment portfolio were as follows: • Commercial loan portfolio amounted to $3.077 billion (40.8% of the gross loan portfolio) compared to $2.630 billion (38.5% of the gross loan portfolio) at December 31, 2022.
The risk-based capital ratios presented in Table 17 include common equity tier 1, tier 1 capital, total capital and leverage capital as of December 31, 2022 and 2021 and are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets. 62 Table of Contents The following are OFG’s consolidated capital ratios under the Basel III capital rules at December 31, 2022 and 2021: TABLE 17 — CAPITAL, DIVIDENDS AND STOCK DATA December 31, December 31, Variance 2022 2021 % (Dollars in thousands, except per share data) Capital data: Stockholders’ equity $ 1,042,406 $ 1,069,160 (2.5) % Regulatory Capital Ratios data: Common equity tier 1 capital ratio 13.64 % 13.77 % (0.9) % Minimum common equity tier 1 capital ratio required 4.50 % 4.50 % 0.0 % Actual common equity tier 1 capital $ 1,037,385 964,284 7.6 % Minimum common equity tier 1 capital required $ 342,246 315,219 8.6 % Minimum capital conservation buffer required (2.5%) $ 190,137 175,122 8.6 % Excess over regulatory requirement $ 505,002 473,943 6.6 % Risk-weighted assets $ 7,605,466 7,004,876 8.6 % Tier 1 risk-based capital ratio 13.64 % 14.27 % (4.4) % Minimum tier 1 risk-based capital ratio required 6.00 % 6.00 % 0.0 % Actual tier 1 risk-based capital $ 1,037,385 $ 999,284 3.8 % Minimum tier 1 risk-based capital required $ 456,328 $ 420,293 8.6 % Minimum capital conservation buffer required (2.5%) $ 190,137 175,122 8.6 % Excess over regulatory requirement $ 390,920 $ 403,869 (3.2) % Risk-weighted assets $ 7,605,466 $ 7,004,876 8.6 % Total risk-based capital ratio 14.89 % 15.52 % (4.1) % Minimum total risk-based capital ratio required 8.00 % 8.00 % 0.0 % Actual total risk-based capital $ 1,132,658 $ 1,086,897 4.2 % Minimum total risk-based capital required $ 608,437 $ 560,390 8.6 % Minimum capital conservation buffer required (2.5%) $ 190,137 175,122 8.6 % Excess over regulatory requirement $ 334,084 $ 351,385 (4.9) % Risk-weighted assets $ 7,605,466 $ 7,004,876 8.6 % Leverage capital ratio 10.36 % 9.69 % 6.9 % Minimum leverage capital ratio required 4.00 % 4.00 % 0.0 % Actual tier 1 capital $ 1,037,385 $ 999,284 3.8 % Minimum tier 1 capital required $ 400,445 $ 412,359 (2.9) % Excess over regulatory requirement $ 636,940 $ 586,925 8.5 % Tangible common equity to total assets 9.48 % 9.57 % (0.9) % Tangible common equity to risk-weighted assets 12.24 % 13.52 % (9.5) % Total equity to total assets 10.62 % 10.80 % -1.7 % Total equity to risk-weighted assets 13.71 % 15.26 % (10.2) % Stock data: Outstanding common shares 47,581,375 49,636,352 (4.1) % Book value per common share $ 21.91 $ 21.54 1.7 % Tangible book value per common share $ 19.56 $ 19.08 2.5 % Market price at end of year $ 27.56 $ 26.56 3.8 % Market capitalization at end of year $ 1,311,343 $ 1,318,342 -0.5 % 63 Table of Contents From December 31, 2021 to December 31, 2022, leverage capital ratio increased from 9.69% to 10.36%, tier 1 risk-based capital ratio decreased from 14.27% to 13.64%, total risk-based capital ratio decreased from 15.52% to 14.89%, common equity tier 1 capital ratio decreased from 13.77% to 13.64%, and tangible common equity to tangible total assets decreased from 9.69% to 9.59%.
The risk-based capital ratios presented in Table 16 include common equity tier 1, tier 1 capital, total capital and leverage capital as of December 31, 2023 and 2022 and are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets. 61 The following are OFG’s consolidated capital ratios under the Basel III capital rules at December 31, 2023 and 2022: TABLE 16 — CAPITAL, DIVIDENDS AND STOCK DATA December 31, Variance 2023 2022 % (Dollars in thousands, except per share data) Capital data: Stockholders’ equity $ 1,193,480 $ 1,042,406 14.5 % Regulatory Capital Ratios data: Common equity tier 1 capital ratio 14.12 % 13.64 % 3.5 % Minimum common equity tier 1 capital ratio required 4.50 % 4.50 % 0.0 % Actual common equity tier 1 capital $ 1,174,205 1,037,385 13.2 % Minimum common equity tier 1 capital required $ 374,301 342,246 9.4 % Minimum capital conservation buffer required (2.5%) $ 207,945 190,137 9.4 % Excess over regulatory requirement $ 591,959 505,002 17.2 % Risk-weighted assets $ 8,317,802 7,605,466 9.4 % Tier 1 risk-based capital ratio 14.12 % 13.64 % 3.5 % Minimum tier 1 risk-based capital ratio required 6.00 % 6.00 % 0.0 % Actual tier 1 risk-based capital $ 1,174,205 $ 1,037,385 13.2 % Minimum tier 1 risk-based capital required $ 499,068 $ 456,328 9.4 % Minimum capital conservation buffer required (2.5%) $ 207,945 190,137 9.4 % Excess over regulatory requirement $ 467,192 $ 390,920 19.5 % Risk-weighted assets $ 8,317,802 $ 7,605,466 9.4 % Total risk-based capital ratio 15.37 % 14.89 % 3.2 % Minimum total risk-based capital ratio required 8.00 % 8.00 % 0.0 % Actual total risk-based capital $ 1,278,537 $ 1,132,658 12.9 % Minimum total risk-based capital required $ 665,424 $ 608,437 9.4 % Minimum capital conservation buffer required (2.5%) $ 207,945 190,137 9.4 % Excess over regulatory requirement $ 405,168 $ 334,084 21.3 % Risk-weighted assets $ 8,317,802 $ 7,605,466 9.4 % Leverage capital ratio 11.03 % 10.36 % 6.5 % Minimum leverage capital ratio required 4.00 % 4.00 % 0.0 % Actual tier 1 capital $ 1,174,205 $ 1,037,385 13.2 % Minimum tier 1 capital required $ 425,911 $ 400,445 6.4 % Excess over regulatory requirement $ 748,294 $ 636,940 17.5 % Tangible common equity to total assets 9.60 % 9.48 % 1.3 % Tangible common equity to risk-weighted assets 13.09 % 12.24 % 6.9 % Total equity to total assets 10.52 % 10.62 % -0.9 % Total equity to risk-weighted assets 14.35 % 13.71 % 4.7 % Stock data: Outstanding common shares 47,065,156 47,581,375 (1.1) % Book value per common share $ 25.36 $ 21.91 15.7 % Tangible book value per common share $ 23.13 $ 19.56 18.3 % Market price at end of period $ 37.48 $ 27.56 36.0 % Market capitalization at end of period $ 1,764,002 $ 1,311,343 34.5 % 62 From December 31, 2022 to December 31, 2023, leverage capital ratio increased from 10.36% to 11.03%, tier 1 risk-based capital ratio and common equity tier 1 capital ratio increased from 13.64% to 14.12%, total risk-based capital ratio increased from 14.89% to 15.37%, and tangible common equity to tangible total assets increased from 9.59% to 9.68%.
December 31, Variance 2022 2021 % (Dollars in thousands) Common dividend data: Cash dividends declared $ 33,593 $ 20,505 63.8 % Cash dividends declared per share $ 0.70 $ 0.40 75.0 % Payout ratio 20.35 % 14.19 % 43.4 % Dividend yield 2.54 % 1.50 % 69.3 % The following table presents a reconciliation of OFG’s total stockholders’ equity to tangible common equity and total assets to tangible assets at December 31, 2022 and 2021: December 31, 2022 2021 (In thousands, except share or per share information) Total stockholders’ equity $ 1,042,406 $ 1,069,160 Goodwill (84,241) (86,069) Other intangible assets (27,593) (36,093) Total tangible common equity (non-GAAP) $ 930,572 $ 946,998 Total assets $ 9,818,780 9,899,720 Goodwill (84,241) (86,069) Core deposit intangible (21,131) (27,630) Customer relationship intangible (6,462) (8,368) Other intangibles — (95) Total tangible assets $ 9,706,946 $ 9,777,558 Tangible common equity to tangible assets 9.59 % 9.69 % Common shares outstanding at end of year 47,581,375 49,636,352 Tangible book value per common share $ 19.56 $ 19.08 The tangible common equity to tangible assets ratio and tangible book value per common share are non-GAAP measures and, unlike tier 1 capital and common equity tier 1 capital, are not codified in the federal banking regulations.
December 31, Variance 2023 2022 % (Dollars in thousands) Common dividend data: Cash dividends declared $ 41,853 $ 33,593 24.6 % Cash dividends declared per share $ 0.88 $ 0.70 25.7 % Payout ratio 22.98 % 20.35 % 12.9 % Dividend yield 2.35 % 2.54 % (7.5) % The following table presents a reconciliation of OFG’s total stockholders’ equity to tangible common equity and total assets to tangible assets at December 31, 2023 and 2022: December 31, 2023 2022 (In thousands, except share or per share information) Total stockholders’ equity $ 1,193,480 $ 1,042,406 Goodwill (84,241) (84,241) Other intangible assets (20,694) (27,593) Total tangible common equity (non-GAAP) $ 1,088,545 $ 930,572 Total assets $ 11,344,453 9,818,780 Goodwill (84,241) (84,241) Core deposit intangible (15,848) (21,131) Customer relationship intangible (4,846) (6,462) Total tangible assets $ 11,239,518 $ 9,706,946 Tangible common equity to tangible assets 9.68 % 9.59 % Common shares outstanding at end of period 47,065,156 47,581,375 Tangible book value per common share $ 23.13 $ 19.56 The tangible common equity to tangible assets ratio and tangible book value per common share are non-GAAP measures and, unlike tier 1 capital and common equity tier 1 capital, are not codified in the federal banking regulations.
Please refer to “Note 12 – Goodwill and other intangibles” to our consolidated financial statements for more information on the annual goodwill impairment test. 48 Table of Contents TABLE 5 - ASSETS SUMMARY AND COMPOSITION December 31, Variance % 2022 2021 (In thousands) Investments: FNMA and FHLMC certificates $ 1,105,551 $ 550,809 100.7 % Obligations of US government-sponsored agencies — 1,183 -100.0 % US Treasury securities 506,768 10,825 4,581.5 % CMOs issued by US government-sponsored agencies 14,851 24,430 -39.2 % GNMA certificates 319,534 288,578 10.7 % Equity securities 23,667 17,578 34.6 % Other debt securities 1,142 2,395 -52.3 % Trading securities 9 20 -55.0 % Total investments 1,971,522 895,818 120.1 % Loans, net 6,723,236 6,329,311 6.2 % Total investments and loans 8,694,758 7,225,129 20.3 % Other assets: Cash and due from banks (including restricted cash) 546,303 2,014,698 -72.9 % Money market investments 4,161 8,952 -53.5 % Foreclosed real estate 11,214 15,039 -25.4 % Accrued interest receivable 62,402 56,560 10.3 % Deferred tax asset, net 55,485 99,063 -44.0 % Premises and equipment, net 106,820 92,124 16.0 % Servicing assets 50,921 48,973 4.0 % Goodwill 84,241 86,069 -2.1 % Other intangible assets 27,593 36,093 -23.6 % Right of use assets 25,363 28,846 -12.1 % Other assets and customers' liability on acceptances 149,519 188,174 -20.5 % Total other assets 1,124,022 2,674,591 -58.0 % Total assets $ 9,818,780 $ 9,899,720 -0.8 % Investment portfolio composition: FNMA and FHLMC certificates 56.0 % 61.5 % Obligations of US government-sponsored agencies 0.0 % 0.1 % US Treasury securities 25.7 % 1.2 % CMOs issued by US government-sponsored agencies 0.8 % 2.7 % GNMA certificates 16.2 % 32.2 % Equity securities 1.2 % 2.0 % Other debt securities and trading securities 0.1 % 0.3 % 100.0 % 100.0 % 49 Table of Contents TABLE 6 - LOAN PORTFOLIO COMPOSITION December 31, Variance % 2022 2021 (In thousands) Loans held for investment: Commercial $ 2,629,929 $ 2,379,330 10.5 % Mortgage 1,704,221 1,907,271 (10.6) % Consumer 537,257 409,675 31.1 % Auto loans and leases 1,963,915 1,706,310 15.1 % 6,835,322 6,402,586 6.8 % Allowance for credit losses (152,673) (155,937) (2.1) % Total loans held for investment 6,682,649 6,246,649 7.0 % Mortgage loans held for sale 19,499 51,096 (61.8) % Other loans held for sale 21,088 31,566 (33.2) % Total loans, net $ 6,723,236 $ 6,329,311 6.2 % OFG’s loan portfolio is composed of mortgage, commercial, consumer, and auto loans and leases.
Please refer to “Note 11 – Goodwill and Other Intangible Assets” to our consolidated financial statements for more information on the annual goodwill impairment test. 47 TABLE 5 - ASSETS SUMMARY AND COMPOSITION December 31, Variance % 2023 2022 (In thousands) Investments: FNMA and FHLMC certificates $ 1,730,655 $ 1,105,551 56.5 % US Treasury securities 496,113 506,768 -2.1 % GNMA certificates 376,294 319,534 17.8 % Equity securities 38,469 23,667 62.5 % CMOs issued by US government-sponsored agencies 9,610 14,851 -35.3 % Other debt securities 35,616 1,142 3,018.7 % Trading securities 13 9 44.4 % Total investments 2,686,770 1,971,522 36.3 % Loans, net 7,401,618 6,723,236 10.1 % Total investments and loans 10,088,388 8,694,758 16.0 % Other assets: Cash and due from banks (including restricted cash) 743,550 546,303 36.1 % Money market investments 4,623 4,161 11.1 % Foreclosed real estate 10,780 11,214 -3.9 % Accrued interest receivable 71,400 62,402 14.4 % Deferred tax asset, net 4,923 55,485 -91.1 % Premises and equipment, net 104,102 106,820 -2.5 % Servicing assets 49,520 50,921 -2.8 % Goodwill 84,241 84,241 0.0 % Other intangible assets 20,694 27,593 -25.0 % Operating lease right-of-use assets 21,725 25,363 -14.3 % Other assets and customers' liability on acceptances 140,507 149,519 -6.0 % Total other assets 1,256,065 1,124,022 11.7 % Total assets $ 11,344,453 $ 9,818,780 15.5 % Investment portfolio composition: FNMA and FHLMC certificates 64.4 % 56.0 % US Treasury securities 18.5 % 25.7 % GNMA certificates 14.0 % 16.2 % Equity securities 1.4 % 1.2 % CMOs issued by US government-sponsored agencies 0.4 % 0.8 % Other debt securities and trading securities 1.3 % 0.1 % 100.0 % 100.0 % 48 TABLE 6 - LOAN PORTFOLIO COMPOSITION December 31, Variance % 2023 2022 (In thousands) Loans held for investment: Commercial loans $ 3,076,903 $ 2,629,929 17.0 % Mortgage loans 1,562,609 1,704,221 (8.3) % Consumer loans 620,446 537,257 15.5 % Auto loans 2,274,421 1,963,915 15.8 % 7,534,379 6,835,322 10.2 % Allowance for credit losses (161,106) (152,673) 5.5 % Total loans held for investment 7,373,273 6,682,649 10.3 % Mortgage loans held for sale — 19,499 (100.0) % Other loans held for sale 28,345 21,088 34.4 % Total loans, net $ 7,401,618 $ 6,723,236 10.1 % OFG’s loan portfolio is composed of commercial, mortgage, consumer, and auto loans.
Non-PCD mortgage loans are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan, except for FHA and VA insured mortgage loans which are placed in non-accrual when they become 12 months or more past due. 52 Table of Contents Consumer loans - At December 31, 2022, OFG’s non-performing consumer loans amounted to $3.1 million (3.1% of OFG’s non-performing loans), an 35.8% increase from $2.3 million at December 31, 2021 (2.1% of OFG’s non-performing loans), which reflect higher balances in the portfolio.
Non-PCD mortgage loans are placed on non-accrual status when they become 90 days or more past due and are written-down, if necessary, based on the specific evaluation of the collateral underlying the loan, except for FHA and VA insured mortgage loans which are placed in non-accrual when they become 12 months or more past due.
At December 31, 2022, OFG had $89.6 million of non-accrual loans held for investment, including $9.2 million PCD loans, compared to $101.9 million at December 31, 2021, reflecting decreases of $6.8 million, $6.1 million and $216 thousand in commercial, mortgage and auto loan portfolios, respectively, partially offset by an increase of $825 thousand in the consumer loan portfolio.
At December 31, 2023, OFG had $79.4 million of non-accrual loans held for investment, including $6.7 million PCD loans, compared to $89.6 million at December 31, 2022, reflecting decreases of $0.6 million and $9.1 million in auto and mortgage loan portfolios, respectively.
Capital Actions 2022 Capital Actions In January 2022, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.15 per common share from $0.12 per share, beginning on the quarter ended March 31, 2022.
Announcement of Forthcoming 2024 Capital Actions In January 2024, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend to $0.25 per common share from $0.22 per share, beginning in the quarter ending March 31, 2024. The Board of Directors also approved a new $50.0 million stock repurchase program.
Earnings per share (“EPS”) diluted was $0.97 compared to $0.87 in the third quarter of 2022 and $0.66 in the fourth quarter of 2021. Total core revenues were $168.3 million compared to $156.8 million in the third quarter of 2022 and $141.0 million in the fourth quarter of 2021.
Highlights: Earnings per share diluted was $0.98 compared to $0.95 in the third quarter of 2023 and $0.97 in the fourth quarter of 2022. Total core revenues of $175.6 million compared to $172.2 million in the third quarter of 2023 and $168.3 million in the fourth quarter of 2022.
As shown in Table 6 above, total loans, net, amounted to $6.723 billion at December 31, 2022 and $6.329 billion at December 31, 2021.
As shown in Table 6 above, total loans, net, amounted to $7.402 billion at December 31, 2023, a 10.1% increase when compared to $6.723 billion at December 31, 2022.
The decreases in capital ratios reflected common stock repurchases of $64.1 million during 2022 and an increase in risk-weighted assets, partially offset by increase in retained earnings from net income. Risk-weighted assets increased, mainly from higher loan and investment portfolios at December 31, 2022.
The increases in capital ratios reflected an increase in retained earnings from net income, net of dividends and stock repurchases, partially offset by an increase in risk-weighted assets of $712.3 million. Risk-weighted assets increased mainly from an increase in loans.
These decreases were partially offset by: • The effect in 2021 of a $1.5 million loss recorded for the early termination of $33.3 million in Federal Home Loan Bank advances with an average cost of 2.98%; and • An increase of $756 thousand in other non-interest income, primarily related to a $4.6 million gain recognized on the sale of a branch building during 2022; partially offset by a $2.4 million warrant revenue and a $1.5 million receivable recoveries written-off in the Scotiabank Acquisition, both recorded during 2021. 43 Table of Contents TABLE 3 - NON-INTEREST EXPENSES SUMMARY Year Ended December 31, 2022 2021 Variance % (In thousands) Compensation and employee benefits $ 142,930 $ 133,442 7.1 % Occupancy, equipment and infrastructure costs 51,308 50,158 2.3 % Electronic banking charges 39,554 37,202 6.3 % Information technology expenses 21,891 18,965 15.4 % Professional and service fees 24,842 20,080 23.7 % Taxes, other than payroll and income taxes 12,999 13,829 -6.0 % Insurance 9,898 10,092 -1.9 % Loan servicing and clearing expenses 9,161 7,604 20.5 % Advertising, business promotion, and strategic initiatives 8,240 6,999 17.7 % Communication 4,296 4,555 -5.7 % Printing, postage, stationery and supplies 3,563 4,037 -11.7 % Director and investor relations 1,125 1,135 -0.9 % Climate event expenses 1,574 — 100.0 % Foreclosed real estate and other repossessed assets income, net (2,074) (3,007) 31.0 % Other 16,239 20,665 -21.4 % Total non-interest expenses $ 345,546 $ 325,756 6.1 % Relevant ratios and data: Efficiency ratio 56.85 % 60.70 % Compensation and benefits to non-interest expense 41.36 % 40.96 % Compensation to average total assets owned 1.41 % 1.29 % Number of employees end of year 2,253 2,269 Average number of employees 2,249 2,251 Average compensation per employee (in thousands) $ 63.55 $ 59.28 Average loans per average employee $ 2,960 $ 2,904 Non-Interest Expenses Comparison of the years ended December 31, 2022 and 2021 Non-interest expense was $345.5 million, representing an increase of 6.1%, or $19.8 million, compared to $325.8 million.
Results for 2022 also included a $4.7 million gain recognized on the sale of a branch building. 42 TABLE 3 - NON-INTEREST EXPENSES SUMMARY Year Ended December 31, 2023 2022 Variance % (In thousands) Compensation and employee benefits $ 155,827 $ 142,930 9.0 % Occupancy, equipment and infrastructure costs 59,235 51,308 15.4 % Electronic banking charges 41,336 39,554 4.5 % Information technology expenses 27,162 21,891 24.1 % Professional and service fees 18,764 24,842 -24.5 % Taxes, other than payroll and income taxes 12,968 12,999 -0.2 % Insurance 10,494 9,898 6.0 % Loan servicing and clearing expenses 7,774 9,161 -15.1 % Advertising, business promotion, and strategic initiatives 8,743 8,240 6.1 % Communication 4,678 4,296 8.9 % Printing, postage, stationery and supplies 3,338 3,563 -6.3 % Director and investor relations 1,351 1,125 20.1 % Foreclosed real estate and other repossessed assets income, net of expenses (405) (2,074) 80.5 % Other 12,100 17,813 -32.1 % Total non-interest expenses $ 363,365 $ 345,546 5.2 % Relevant ratios and data: Efficiency ratio 53.22 % 56.85 % Compensation and benefits to non-interest expense 42.88 % 41.36 % Compensation to average total assets owned 1.53 % 1.41 % Number of employees end of year 2,248 2,253 Average number of employees 2,258 2,249 Average compensation per employee (in thousands) $ 69.01 $ 63.55 Average loans per average employee $ 3,154 $ 2,960 Non-Interest Expenses Comparison of the years ended December 31, 2023 and 2022 Non-interest expense was $363.4 million, representing an increase of 5.2%, or $17.8 million, compared to $345.5 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The accounting and reporting policies followed by OFG conform with GAAP and general practices within the financial services industry. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.
The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts.
OFG measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated. OFG’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others.
OFG’s methodology for allocating non-interest expenses among segments is based on several factors such as revenue, employee headcount, occupied space, dedicated services or time, among others.
Net charge-offs variances were as follows: Residential mortgage loans net recoveries amounted to $4.0 million in 2022, decreasing $27.1 million when compared to net charge-offs of $23.1 million in 2021.
Net charge-offs variances were as follows: Residential mortgage loans net recoveries amounted to $839 thousand in 2023, decreasing by $3.2 million when compared to net recoveries of $4.0 million in 2022. Commercial loans net charge-offs for 2023 amounted to $14.5 million, increasing by $6.0 million, when compared to net charge-offs of $8.4 million in 2022.
Non-PCD consumer loans are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit.
Non-PCD consumer loans are placed on non-accrual status when they become 90 days past due and written-off when payments are delinquent 120 days in personal loans and 180 days in credit cards and personal lines of credit. 51 Auto loans - At December 31, 2023, OFG’s non-performing auto loans amounted to $19.1 million (22.3% of OFG’s total non-performing loans), a decrease of 2.8% from $19.6 million at December 31, 2022 (19.7% of OFG’s total non-performing loans).
For a detailed description of the principal factors used to determine the allowance for credit losses related to loans collectively evaluated for impairment and for the principal enhancement’s management made to its methodology, please refer to “Note 1– Summary of Significant Accounting Policies” and “Note 6 – Loans” to the consolidated financial statements. 35 Table of Contents FINANCIAL HIGHLIGHTS We believe that Puerto Rico businesses and consumers remain in good financial shape.
For a detailed description of the principal factors used to determine the ACL related to loans collectively evaluated for impairment and for the principal enhancement’s management made to its methodology, please refer to “Note 1– Summary of Significant Accounting Policies” and “Note 5 – Loans” to the consolidated financial statements. 34 FINANCIAL HIGHLIGHTS The year ended December 31, 2023 was an outstanding year.
Amounts presented as part of non-interest income that are excluded from the efficiency ratio computation for 2022 and 2021 amounted to $6.0 million and $4.0 million, respectively. Provision for Credit Losses Comparison of the years ended December 31, 2022 and 2021 Provision for credit losses increased $23.9 million to $24.1 million from $221 thousand.
The efficiency ratio was 53.22%, an improvement from 56.85%. Amounts presented as part of non-interest income that were excluded from the efficiency ratio computation for years ended December 31, 2023 and 2022 amounted to $6.5 million and $6.0 million, respectively.
Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as OFG’s organization, nature of its products, distribution channels and economic characteristics of its services were also considered in the determination of the reportable segments.
Other factors such as OFG’s organization, nature of its products, distribution channels and economic characteristics of its services were also considered in the determination of the reportable segments. OFG measures the performance of these reportable segments based on pre-established goals of different financial parameters such as net income, net interest income, loan production, and fees generated.
Interest income of $145.7 million compared to $134.7 million in the third quarter of 2022 and $112.6 million in the fourth quarter of 2021. Compared to the third quarter of 2022, the fourth quarter of 2022 benefited from higher yields on increased average balances of loans and investment securities.
Compared to the third quarter of 2023, the fourth quarter of 2023 primarily reflected higher average balances and yields on loans and investment securities. Total interest expense of $32.7 million compared to $23.9 million in the third quarter of 2023 and $10.4 million in the fourth quarter of 2022.
TABLE 11 - ALLOWANCE FOR CREDIT LOSSES SUMMARY Year Ended December 31, 2022 2021 Variance % (Dollars in thousands) Allowance for credit losses: Balance at beginning of year $ 155,937 $ 204,809 -23.9 % Provision for credit losses 24,408 883 2,664.2 % Charge-offs (63,774) (86,546) -26.3 % Recoveries 36,102 36,791 -1.9 % Balance at end of year $ 152,673 $ 155,937 -2.1 % 55 Table of Contents TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES Year Ended December 31, 2022 2021 Variance % (Dollars in thousands) Non-PCD Mortgage Charge-offs $ (284) $ (5,789) -95.1 % Recoveries 3,314 1,643 101.7 % Total 3,030 (4,146) -173.1 % Commercial Charge-offs (13,380) (8,788) 52.3 % Recoveries 1,200 2,401 -50.0 % Total (12,180) (6,387) 90.7 % Consumer Charge-offs (15,198) (11,880) 27.9 % Recoveries 3,237 2,900 11.6 % Total (11,961) (8,980) 33.2 % Auto loans and leases Charge-offs (32,662) (26,530) 23.1 % Recoveries 21,131 23,970 -11.8 % Total (11,531) (2,560) 350.4 % PCD Loans: Mortgage Charge-offs $ (1,695) $ (20,350) (91.7) % Recoveries 2,665 1,423 87.3 % Total 970 (18,927) (105.1) % Commercial Charge-offs (69) (12,241) (99.4) % Recoveries 3,804 2,929 29.9 % Total 3,735 (9,312) (140.1) % Consumer Charge-offs (176) (22) 700.0 % Recoveries 94 316 (70.3) % Total (82) 294 (127.9) % Auto loans and leases Charge-offs (310) (946) (67.2) % Recoveries 657 1,209 (45.7) % Total 347 263 31.9 % Total charge-offs (63,774) (86,546) (26.3) % Total recoveries 36,102 36,791 (1.9) % Net credit losses $ (27,672) $ (49,755) (44.4) % 56 Table of Contents TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES (CONTINUED) Year Ended December 31, 2022 2021 Variance % (Dollars in thousands) Net credit losses to average loans outstanding: Mortgage (0.22) % 1.10 % -120.39 % Commercial 0.33 % 0.66 % -49.3 % Consumer 2.33 % 2.12 % 9.7 % Auto loans and leases 0.62 % 0.14 % 338.3 % Total 0.42 % 0.76 % -45.4 % Recoveries to charge-offs 56.61 % 42.51 % 33.2 % Average Loans Held for Investment Mortgage $ 1,787,476 $ 2,102,215 -15.0 % Commercial 2,538,720 2,392,625 6.1 % Consumer 516,883 408,995 26.4 % Auto loans and leases 1,814,681 1,633,653 11.1 % Total $ 6,657,760 $ 6,537,488 1.8 % Net charge-offs for 2022 amounted to $27.7 million, decreasing $22.1 million when compared to $49.8 million in 2021.
TABLE 11 - ALLOWANCE FOR CREDIT LOSSES SUMMARY Year Ended December 31, 2023 2022 Variance % (Dollars in thousands) Balance at beginning of year $ 152,673 $ 155,937 -2.1 % Provision for credit losses 60,277 24,408 147.0 % Charge-offs (86,271) (63,774) 35.3 % Recoveries 34,427 36,102 -4.6 % Balance at end of year $ 161,106 $ 152,673 5.5 % 54 TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOANS Year Ended December 31, 2023 2022 Variance % (Dollars in thousands) Non-PCD: Mortgage loans Charge-offs $ (759) $ (284) 167.3 % Recoveries 1,217 3,314 -63.3 % Total 458 3,030 -84.9 % Commercial loans Charge-offs (14,191) (13,380) 6.1 % Recoveries 874 1,200 -27.2 % Total (13,317) (12,180) 9.3 % Consumer loans Charge-offs (23,655) (15,198) 55.6 % Recoveries 4,175 3,237 29.0 % Total (19,480) (11,961) 62.9 % Auto loans Charge-offs (43,764) (32,662) 34.0 % Recoveries 25,107 21,131 18.8 % Total (18,657) (11,531) 61.8 % PCD: Mortgage loans Charge-offs $ (317) $ (1,695) (81.3) % Recoveries 698 2,665 (73.8) % Total 381 970 (60.7) % Commercial loans Charge-offs (2,794) (69) 3,949.3 % Recoveries 1,618 3,804 (57.5) % Total (1,176) 3,735 (131.5) % Consumer loans Charge-offs (621) (176) 252.8 % Recoveries 96 94 2.1 % Total (525) (82) 540.2 % Auto loans Charge-offs (170) (310) (45.2) % Recoveries 642 657 (2.3) % Total 472 347 36.0 % Total charge-offs (86,271) (63,774) 35.3 % Total recoveries 34,427 36,102 (4.6) % Net credit losses $ (51,844) $ (27,672) 87.4 % 55 TABLE 12 — NET CREDIT LOSSES STATISTICS ON LOANS (CONTINUED) Year Ended December 31, 2023 2022 Variance % (Dollars in thousands) Net credit losses (recoveries) to average loans outstanding: Mortgage loans (0.05) % (0.22) % 76.60 % Commercial loans 0.52 % 0.33 % 56.9 % Consumer 3.25 % 2.33 % 39.5 % Auto loans 0.86 % 0.62 % 38.8 % Total 0.73 % 0.42 % 75.2 % Recoveries to charge-offs 39.91 % 56.61 % -29.5 % Average Loans Held for Investment Mortgage loans $ 1,601,946 $ 1,787,476 -10.4 % Commercial loans 2,777,241 2,538,720 9.4 % Consumer loans 615,629 516,883 19.1 % Auto loans 2,126,360 1,814,681 17.2 % Total $ 7,121,176 $ 6,657,760 7.0 % Net charge-offs for 2023 amounted to $51.8 million, increasing by $24.2 million, when compared to $27.7 million in 2022.
Refer to “Note 18 - Income Taxes” to the consolidated financial statements for additional information on the income tax expense. 45 Table of Contents TABLE 4 - BUSINESS SEGMENTS Year Ended December 31, 2022 Banking Wealth Management Treasury Total Eliminations Consolidated Total (In thousands) Interest income $ 465,177 $ 21 $ 56,955 $ 522,153 $ (6,580) $ 515,573 Interest expense (31,926) — (8,147) (40,073) 6,580 (33,493) Net interest income 433,251 21 48,808 482,080 — 482,080 Provision for credit losses 24,111 — 8 24,119 — 24,119 Non-interest income 98,407 33,481 (198) 131,690 — 131,690 Non-interest expenses (323,125) (19,206) (3,215) (345,546) — (345,546) Intersegment revenue 2,187 — — 2,187 (2,187) — Intersegment expenses — (1,497) (690) (2,187) 2,187 — Income before income taxes $ 186,609 $ 12,799 $ 44,697 $ 244,105 $ — $ 244,105 Income tax expense 77,731 97 38 77,866 — 77,866 Net income $ 108,878 $ 12,702 $ 44,659 $ 166,239 $ — $ 166,239 Total assets $ 8,347,767 $ 23,085 $ 2,432,549 $ 10,803,401 $ (984,621) $ 9,818,780 Eliminations include interest income and expense for a borrowing by Oriental Overseas, which is included in the Treasury Segment with its corresponding interest expense, to fund its operations, from the Bank, which is included in the Banking Segment with its corresponding interest income, with an unpaid principal balance of $470.2 million and $262.9 million at December 31, 2022 and 2021, respectively, and is eliminated in the consolidation.
Following are the results of operations and the selected financial information by operating segment for 2023 and 2022. 44 TABLE 4 - BUSINESS SEGMENTS Year Ended December 31, 2023 Banking Wealth Management Treasury Total Eliminations Consolidated Total (In thousands) Interest income $ 567,809 $ 28 $ 95,477 $ 663,314 $ (14,434) $ 648,880 Interest expense (73,480) — (28,964) (102,444) 14,434 (88,010) Net interest income 494,329 28 66,513 560,870 — 560,870 Provision for credit losses 60,255 — 383 60,638 — 60,638 Non-interest income, net 97,099 32,433 (1,151) 128,381 — 128,381 Non-interest expenses (344,488) (15,427) (3,450) (363,365) — (363,365) Intersegment revenue 1,641 — — 1,641 (1,641) — Intersegment expenses — (1,011) (630) (1,641) 1,641 — Income before income taxes $ 188,326 $ 16,023 $ 60,899 $ 265,248 $ — $ 265,248 Income tax expense 83,242 34 100 83,376 — 83,376 Net income $ 105,084 $ 15,989 $ 60,799 $ 181,872 $ — $ 181,872 Total assets $ 9,154,201 $ 38,261 $ 3,304,204 $ 12,496,666 $ (1,152,213) $ 11,344,453 Year Ended December 31, 2022 Banking Wealth Management Treasury Total Eliminations Consolidated Total (In thousands) Interest income $ 465,177 $ 21 $ 56,955 $ 522,153 $ (6,580) $ 515,573 Interest expense (31,926) — (8,147) (40,073) 6,580 (33,493) Net interest income 433,251 21 48,808 482,080 — 482,080 Provision for credit losses 24,111 — 8 24,119 — 24,119 Non-interest income, net 98,407 33,481 (198) 131,690 — 131,690 Non-interest expenses (323,125) (19,206) (3,215) (345,546) — (345,546) Intersegment revenue 2,187 — — 2,187 (2,187) — Intersegment expenses — (1,497) (690) (2,187) 2,187 — Income before income taxes $ 186,609 $ 12,799 $ 44,697 $ 244,105 $ — $ 244,105 Income tax expense 77,731 97 38 77,866 — 77,866 Net income $ 108,878 $ 12,702 $ 44,659 $ 166,239 $ — $ 166,239 Total assets $ 8,347,767 $ 23,085 $ 2,432,549 $ 10,803,401 $ (984,621) $ 9,818,780 Eliminations include interest income and expense for a time deposit opened by the Bank in Oriental Overseas, an international banking entity organized pursuant to the Puerto Rico International Banking Center Regulatory Act, as amended, which operates as a unit within the Bank.
Therefore, those loans are included as non-performing loans but excluded from non-accrual loans. At December 31, 2022, OFG’s non-performing assets decreased by 10.3% to $115.7 million (1.18% total assets) from $129.0 million (1.30% of total assets) at December 31, 2021.
At December 31, 2023, OFG’s non-performing assets decreased by 13.6% to $100.0 million (0.88% total assets) from $115.7 million (1.18% of total assets) at December 31, 2022.
During 2021, borrowers received several federal incentives which facilitated the stabilization of delinquency trends 57 Table of Contents TABLE 13 — NON-PERFORMING ASSETS December 31, Variance % 2022 2021 (Dollars in thousands) Non-performing assets: Non-PCD Non-accruing loans Troubled-Debt Restructuring loans $ 20,329 $ 24,539 -17.2 % Other loans 60,083 64,465 -6.8 % Accruing loans Troubled-Debt Restructuring loans 8,978 9,087 -1.2 % Other loans 1,295 1,038 24.8 % Total $ 90,685 $ 99,129 -8.5 % PCD 9,186 12,879 -28.7 % Total non-performing loans $ 99,871 $ 112,008 -10.8 % Foreclosed real estate 11,214 15,039 -25.4 % Other repossessed assets 4,617 1,945 137.4 % $ 115,702 $ 128,992 -10.3 % Non-performing assets to total assets 1.18 % 1.30 % -9.2 % Non-performing assets to total capital 11.10 % 12.06 % -8.0 % 58 Table of Contents TABLE 14 — NON-ACCRUAL LOANS December 31, Variance % 2022 2021 (Dollars in thousands) Non-accrual loans Non-PCD Commercial $ 34,432 $ 37,603 -8.4 % Mortgage 23,241 29,269 -20.6 % Consumer 3,128 2,303 35.8 % Auto loans and leases 19,613 19,829 -1.1 % Total $ 80,414 $ 89,004 -9.7 % PCD Commercial $ 8,927 $ 12,545 -28.8 % Mortgage 259 334 -22.5 % Total $ 9,186 $ 12,879 -28.7 % Total non-accrual loans $ 89,600 $ 101,883 -12.1 % Non-accruals loans composition percentages: Commercial 48.4 % 49.2 % Mortgage 26.2 % 29.1 % Consumer 3.5 % 2.3 % Auto loans and leases 21.9 % 19.4 % 100.0 % 100.0 % Non-accrual loans ratios: Non-accrual loans to total loans 1.31 % 1.59 % -17.61 % Allowance for credit losses to non-accrual loans 170.39 % 153.05 % 11.33 % Year Ended December 31, 2022 2021 (In thousands) Interest that would have been recorded in the year if the loans had not been classified as non-accruing loans $ 1,420 $ 1,467 59 Table of Contents TABLE 15 - NON-PERFORMING LOANS December 31, Variance % 2022 2021 (Dollars in thousands) Non-performing loans Non-PCD Commercial $ 34,432 $ 37,603 -8.4 % Mortgage 33,512 39,394 -14.9 % Consumer 3,128 2,303 35.8 % Auto loans and leases 19,613 19,829 -1.1 % Total $ 90,685 $ 99,129 -8.5 % PCD Commercial $ 8,927 $ 12,545 -28.8 % Mortgage 259 334 -22.5 % Total $ 9,186 $ 12,879 -28.7 % Total non-performing loans $ 99,871 $ 112,008 -10.8 % Non-performing loans composition percentages: Commercial 43.4 % 44.8 % Mortgage 33.8 % 35.5 % Consumer 3.1 % 2.1 % Auto loans and leases 19.7 % 17.6 % 100.0 % 100.0 % Non-performing loans to: Total loans held for investment gross 1.46 % 1.75 % -16.57 % Total assets 1.02 % 1.13 % -9.7 % Total capital 9.58 % 10.48 % -8.6 % Non-performing loans with partial charge-offs to: Total loans held for investment gross 0.40 % 0.46 % -13.0 % Non-performing loans 27.27 % 26.53 % 2.8 % Other non-performing loans ratios: Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken 99.57 % 170.31 % -41.5 % Allowance for credit losses to non-performing loans on which no charge-offs have been taken 210.18 % 189.49 % 10.9 % 60 Table of Contents TABLE 16 - LIABILITIES SUMMARY AND COMPOSITION December 31, Variance % 2022 2021 (Dollars in thousands) Deposits: Non-interest-bearing deposits $ 2,630,458 $ 2,501,644 5.1 % NOW accounts 2,546,245 2,702,636 -5.8 % Savings and money market accounts 2,227,963 2,177,779 2.3 % Time deposits 1,162,959 1,220,262 -4.7 % Total deposits 8,567,625 8,602,321 -0.4 % Accrued interest payable 739 797 -7.3 % Total deposits and accrued interest payable 8,568,364 8,603,118 -0.4 % Borrowings: Advances from FHLB 26,716 28,488 -6.2 % Subordinated capital notes — 36,083 -100.0 % Other borrowings 318 — 100.0 % Total borrowings 27,034 64,571 -58.1 % Total deposits and borrowings 8,595,398 8,667,689 -0.8 % Other Liabilities: Derivative liabilities — 804 -100.0 % Acceptances outstanding 28,607 35,329 -19.0 % Lease liability 27,370 30,498 -10.3 % Other liabilities 124,999 96,240 29.9 % Total liabilities $ 8,776,374 $ 8,830,560 -0.6 % Deposits portfolio composition percentages: Non-interest-bearing deposits 30.7 % 29.1 % NOW accounts 29.7 % 31.4 % Savings and money market accounts 26.0 % 25.3 % Time deposits 13.6 % 14.2 % 100.0 % 100.0 % Borrowings portfolio composition percentages: Advances from FHLB 98.8 % 44.1 % Subordinated capital notes 0.0 % 55.9 % Other borrowings 1.2 % — % 100.0 % 100.0 % Liabilities and Funding Sources As shown in Table 16 above, at December 31, 2022, OFG’s total liabilities were $8.776 billion, 0.6% lower than the $8.831 billion reported at December 31, 2021.
As mentioned previously, on January 1, 2023, OFG adopted ASU 2022-02 related to the elimination of the recognition and measurement of TDRs and the enhancement of disclosures for loan restructurings for borrowers experiencing financial difficulty using the prospective transition method. 57 TABLE 14 — NON-ACCRUAL LOANS December 31, Variance % 2023 2022 (Dollars in thousands) Non-accrual loans Non-PCD Commercial loans $ 36,096 $ 34,432 4.8 % Mortgage loans 14,197 23,241 -38.9 % Consumer loans 3,376 3,128 7.9 % Auto loans 19,056 19,613 -2.8 % Total $ 72,725 $ 80,414 -9.6 % PCD Commercial loans $ 6,424 $ 8,927 -28.0 % Mortgage loans 250 259 -3.5 % Total $ 6,674 $ 9,186 -27.3 % Total non-accrual loans $ 79,399 $ 89,600 -11.4 % Non-accruals loans composition percentages: Commercial loans 53.6 % 48.4 % Mortgage loans 18.2 % 26.2 % Consumer loans 4.3 % 3.5 % Auto loans 23.9 % 21.9 % 100.0 % 100.0 % Non-accrual loans ratios: Non-accrual loans to total loans 1.05 % 1.31 % -19.85 % Allowance for credit losses to non-accrual loans 202.91 % 170.39 % 19.09 % Year Ended December 31, 2023 2022 (In thousands) Interest that would have been recorded in the period if the loans had not been classified as non-accruing loans $ 941 $ 1,190 58 TABLE 15 - NON-PERFORMING LOANS December 31, Variance % 2023 2022 (Dollars in thousands) Non-performing loans Non-PCD Commercial loans $ 36,096 $ 34,432 4.8 % Mortgage loans 20,007 33,512 -40.3 % Consumer loans 3,376 3,128 7.9 % Auto loans 19,056 19,613 -2.8 % Total $ 78,535 $ 90,685 -13.4 % PCD Commercial loans $ 6,424 $ 8,927 -28.0 % Mortgage loans 250 259 -3.5 % Total $ 6,674 $ 9,186 -27.3 % Total non-performing loans $ 85,209 $ 99,871 -14.7 % Non-performing loans composition percentages: Commercial loans 49.90 % 43.40 % Mortgage loans 23.80 % 33.80 % Consumer loans 4.00 % 3.10 % Auto loans 22.30 % 19.70 % 100.00 % 100.00 % Non-performing loans to: Total loans held for investment gross 1.13 % 1.46 % -22.6 % Total assets 0.75 % 1.02 % -26.5 % Total capital 7.14 % 9.58 % -25.5 % Non-performing loans with partial charge-offs to: Total loans held for investment gross 0.29 % 0.40 % -27.5 % Non-performing loans 25.63 % 27.27 % -6.0 % Other non-performing loans ratios: Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken 75.14 % 99.57 % -24.5 % Allowance for credit losses to non-performing loans on which no charge-offs have been taken 254.24 % 210.18 % 21.0 % 59 TABLE 16 - LIABILITIES SUMMARY AND COMPOSITION December 31, Variance % 2023 2022 (Dollars in thousands) Deposits: Non-interest-bearing deposits $ 2,537,431 $ 2,630,458 -3.5 % NOW accounts 3,512,887 2,546,245 38.0 % Savings accounts 2,088,091 2,227,963 -6.3 % Time deposits 1,620,688 1,162,959 39.4 % Total deposits 9,759,097 8,567,625 13.91 % Accrued interest payable 3,072 739 315.7 % Total deposits and accrued interest payable 9,762,169 8,568,364 13.93 % Borrowings: Advances from FHLB 200,768 26,716 651.5 % Other borrowings 2 318 -99.4 % Total borrowings 200,770 27,034 642.7 % Total deposits and borrowings 9,962,939 8,595,398 15.9 % Other Liabilities: Acceptances outstanding 25,576 28,607 -10.6 % Lease liability 24,029 27,370 -12.2 % Deferred tax liability, net 22,444 — 100.0 % Other liabilities 115,985 124,999 -7.2 % Total liabilities $ 10,150,973 $ 8,776,374 15.7 % Deposits portfolio composition percentages: Non-interest-bearing deposits 26.0% 30.7% NOW accounts 36.0% 29.7% Savings accounts 21.4% 26.0% Time deposits 16.6% 13.6% 100.0 % 100.0 % Borrowings portfolio composition percentages: Advances from FHLB 100.0 % 98.8 % Other borrowings — % 1.2 % 100.0 % 100.0 % Liabilities and Funding Sources As shown in Table 15 above, at December 31, 2023, OFG’s total liabilities were $10.151 billion, 15.7% higher than the $8.776 billion reported at December 31, 2022.
At December 31, 2022, the total loans outstanding under the payment accommodations program amounted to $33.1 million. 53 Table of Contents TABLE 9 - ALLOWANCE FOR CREDIT LOSSES BREAKDOWN December 31, Variance % 2022 2021 (In thousands) Allowance for credit losses: Non-PCD Commercial $ 39,158 $ 32,262 21.4 % Mortgage 9,571 15,299 -37.4 % Consumer 23,264 19,141 21.5 % Auto loans and leases 69,848 65,363 6.9 % Total allowance for credit losses $ 141,841 $ 132,065 7.4 % PCD Commercial $ 1,388 $ 4,508 -69.2 % Mortgage 9,359 19,018 -50.8 % Consumer 14 34 -58.8 % Auto loans and leases 71 312 -77.2 % Total allowance for credit losses $ 10,832 $ 23,872 -54.6 % Allowance for credit losses summary Commercial $ 40,546 $ 36,770 10.3 % Mortgage 18,930 34,317 -44.8 % Consumer 23,278 19,175 21.4 % Auto loans and leases 69,919 65,675 6.5 % Total allowance for credit losses $ 152,673 $ 155,937 -2.1 % Allowance composition: Commercial 26.6 % 23.6 % Mortgage 12.4 % 22.0 % Consumer 15.2 % 12.3 % Auto loans and leases 45.8 % 42.1 % 100.0 % 100.0 % Allowance coverage ratio at end of year: Commercial 1.5 % 1.6 % -0.6 % Mortgage 1.1 % 1.8 % -38.3 % Consumer 4.3 % 4.7 % -7.5 % Auto loans and leases 3.6 % 3.9 % -7.5 % 2.2 % 2.4 % -8.6 % Allowance coverage ratio to non-performing loans: Commercial 93.5 % 73.3 % 27.5 % Mortgage 56.1 % 86.4 % -35.1 % Consumer 744.2 % 832.6 % -10.6 % Auto loans and leases 356.5 % 331.2 % 7.6 % 152.9 % 139.2 % 9.8 % 54 Table of Contents TABLE 10 - ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES December 31, 2022 2021 Amount of ACL Percent of loans in each category of total loans [1] Amount of ACL Percent of loans in each category of total loans [1] Commercial $ 40,546 38.5 % $ 36,770 37.2 % Mortgage 18,930 24.9 % 34,317 29.8 % Consumer 23,278 7.9 % 19,175 6.4 % Auto loans and leases 69,919 28.7 % 65,675 26.6 % Total $ 152,673 100.0 % $ 155,937 100.0 % [1] Total loans in this table refers to total loans held for investment.
Loans in these programs are evaluated by designated credit underwriters for financial difficulty modification if OFG grants a concession for legal or economic reasons due to the debtor’s financial difficulties. 52 TABLE 9 - ALLOWANCE FOR CREDIT LOSSES BREAKDOWN December 31, Variance % 2023 2022 (In thousands) ACL: Non-PCD Commercial loans $ 44,041 $ 39,158 12.5 % Mortgage loans 7,998 9,571 -16.4 % Consumer loans 27,086 23,264 16.4 % Auto loans 73,485 69,848 5.2 % Total ACL $ 152,610 $ 141,841 7.6 % PCD Commercial loans $ 1,113 $ 1,388 -19.8 % Mortgage loans 7,351 9,359 -21.5 % Consumer loans 7 14 -50.0 % Auto loans 25 71 -64.8 % Total ACL $ 8,496 $ 10,832 -21.6 % ACL summary Commercial loans $ 45,154 $ 40,546 11.4 % Mortgage loans 15,349 18,930 -18.9 % Consumer loans 27,093 23,278 16.4 % Auto loans 73,510 69,919 5.1 % Total ACL $ 161,106 $ 152,673 5.5 % ACL composition: Commercial loans 28.0 % 26.6 % Mortgage loans 9.5 % 12.4 % Consumer loans 16.8 % 15.2 % Auto loans 45.7 % 45.8 % 100.0 % 100.0 % ACL coverage ratio at end of year: Commercial loans 1.5 % 1.5 % (4.5) % Mortgage loans 1.0 % 1.1 % (11.7) % Consumer loans 4.4 % 4.3 % 0.9 % Auto loans 3.2 % 3.6 % (9.3) % 2.1 % 2.2 % (4.0) % ACL coverage ratio to non-performing loans: Commercial loans 106.2 % 93.5 % 13.6 % Mortgage loans 75.8 % 56.1 % 35.2 % Consumer loans 802.5 % 744.2 % 7.8 % Auto loans 385.8 % 356.5 % 8.2 % 189.1 % 152.9 % 23.7 % 53 TABLE 10 - ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES December 31, 2023 2022 Amount of ACL Percent of loans in each category of total loans [1] Amount of ACL Percent of loans in each category of total loans [1] Commercial loans $ 45,154 40.8% $ 40,546 38.5% Mortgage loans 15,349 20.7% 18,930 24.9% Consumer loans 27,093 8.2% 23,278 7.9% Auto loans 73,510 30.3% 69,919 28.7% Total $ 161,106 100.0 % $ 152,673 100.0 % [1] Total loans in this table refers to total loans held for investment.
Financial Assets Managed At December 31, 2022 OFG’s financial assets include those managed by OFG’s trust division and assets gathered by its securities broker-dealer and insurance agency subsidiaries. OFG’s trust division offers various types of individual retirement accounts (“IRAs”) and manages 401(k) and Keogh retirement plans and custodian and corporate trust accounts.
OFG’s trust division offers various types of individual retirement accounts (“IRAs”) and manages Keogh retirement plans and custodian and corporate trust accounts. At December 31, 2023 and 2022, the total assets managed by OFG’s trust division amounted to $2.512 billion and $2.335 billion, respectively.
The following table presents OFG’s capital adequacy information under the Basel III capital rules: December 31, Variance 2022 2021 % (Dollars in thousands) Risk-based capital: Common equity tier 1 capital $ 1,037,385 $ 964,284 7.6 % Additional tier 1 capital — 35,000 (100.0) % Tier 1 capital 1,037,385 999,284 3.8 % Additional Tier 2 capital 95,273 87,613 8.7 % Total risk-based capital $ 1,132,658 $ 1,086,897 4.2 % Risk-weighted assets: Balance sheet items $ 6,976,335 $ 6,406,115 8.9 % Off-balance sheet items 629,131 598,761 5.1 % Total risk-weighted assets $ 7,605,466 $ 7,004,876 8.6 % Ratios: Common equity tier 1 capital (minimum required, including capital conservation buffer - 7%) 13.64 % 13.77 % (0.9) % Tier 1 capital (minimum required, including capital conservation buffer - 8.5%) 13.64 % 14.27 % (4.4) % Total capital (minimum required, including capital conservation buffer - 10.5%) 14.89 % 15.52 % (4.1) % Leverage ratio (minimum required - 4%) 10.36 % 9.69 % 6.9 % Equity to assets 10.62 % 10.80 % -1.7 % Tangible common equity to assets 9.48 % 9.57 % (0.9) % 65 Table of Contents The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action.
Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. 63 The following table presents OFG’s capital adequacy information under the Basel III capital rules: December 31, Variance 2023 2022 % (Dollars in thousands) Risk-based capital: Common equity tier 1 capital $ 1,174,205 $ 1,037,385 13.2 % Tier 1 capital 1,174,205 1,037,385 13.2 % Additional Tier 2 capital 104,332 95,273 9.5 % Total risk-based capital $ 1,278,537 $ 1,132,658 12.9 % Risk-weighted assets: Balance sheet items $ 7,768,828 $ 6,976,335 11.4 % Off-balance sheet items 548,974 629,131 (12.7) % Total risk-weighted assets $ 8,317,802 $ 7,605,466 9.4 % Ratios: Common equity tier 1 capital (minimum required, including capital conservation buffer - 7%) 14.12 % 13.64 % 3.5 % Tier 1 capital (minimum required, including capital conservation buffer - 8.5%) 14.12 % 13.64 % 3.5 % Total capital (minimum required, including capital conservation buffer - 10.5%) 15.37 % 14.89 % 3.2 % Leverage ratio (minimum required - 4%) 11.03 % 10.36 % 6.5 % The Bank is considered “well capitalized” under the regulatory framework for prompt corrective action.
The table below shows the Bank’s regulatory capital ratios at December 31, 2022 and 2021: December 31, Variance 2022 2021 % (Dollars in thousands) Oriental Bank Regulatory Capital Ratios: Common Equity Tier 1 Capital to Risk-Weighted Assets 12.36% 13.09% (5.58) % Actual common equity tier 1 capital $ 933,494 $ 908,717 2.7 % Minimum capital requirement (4.5%) $ 339,910 $ 312,371 8.8 % Minimum capital conservation buffer requirement (2.5%) $ 188,839 $ 173,540 8.8 % Minimum to be well capitalized (6.5%) $ 490,981 $ 451,203 8.8 % Tier 1 Capital to Risk-Weighted Assets 12.36% 13.09% (5.6) % Actual tier 1 risk-based capital $ 933,494 $ 908,717 2.7 % Minimum capital requirement (6%) $ 453,214 $ 416,495 8.8 % Minimum capital conservation buffer requirement (2.5%) $ 188,839 $ 173,540 8.8 % Minimum to be well capitalized (8%) $ 604,285 $ 555,327 8.8 % Total Capital to Risk-Weighted Assets 13.61% 14.34% (5.1) % Actual total risk-based capital $ 1,028,126 $ 995,549 3.3 % Minimum capital requirement (8%) $ 604,285 $ 555,327 8.8 % Minimum capital conservation buffer requirement (2.5%) $ 188,839 $ 173,540 8.8 % Minimum to be well capitalized (10%) $ 755,356 $ 694,159 8.8 % Total Tier 1 Capital to Average Total Assets 9.42% 8.87% 6.2 % Actual tier 1 capital $ 933,494 $ 908,717 2.7 % Minimum capital requirement (4%) $ 396,525 $ 409,855 (3.3) % Minimum to be well capitalized (5%) $ 495,656 $ 512,319 (3.3) % OFG’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At December 31, 2022 and December 31, 2021, OFG’s market capitalization for its outstanding common stock was $1.311 billion ($27.56 per share) and $1.318 billion ($26.56 per share), respectively. 66 Table of Contents The following table provides the high and low prices and dividends per share of OFG’s common stock for each quarter of the last three calendar years: Cash Price Dividend High Low Per share 2022 December 31, 2022 $ 28.90 $ 25.50 $ 0.20 September 30, 2022 $ 29.45 $ 24.66 $ 0.20 June 30, 2022 $ 29.22 $ 25.40 $ 0.15 March 31, 2022 $ 30.54 $ 26.21 $ 0.15 2021 December 31, 2021 $ 27.33 $ 23.84 $ 0.12 September 30, 2021 $ 25.66 $ 20.04 $ 0.12 June 30, 2021 $ 25.14 $ 21.61 $ 0.08 March 31, 2021 $ 22.93 $ 16.48 $ 0.08 2020 December 31, 2020 $ 18.54 $ 12.59 $ 0.07 September 30, 2020 $ 14.35 $ 12.12 $ 0.07 June 30, 2020 $ 15.10 $ 9.38 $ 0.07 March 31, 2020 $ 23.50 $ 9.32 $ 0.07 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 table below shows the Bank’s regulatory capital ratios at December 31, 2023 and 2022: December 31, Variance 2023 2022 % (Dollars in thousands) Oriental Bank Regulatory Capital Ratios: Common Equity Tier 1 Capital to Risk-Weighted Assets 13.01% 12.36% 5.26 % Actual common equity tier 1 capital $ 1,075,487 $ 933,494 15.2 % Minimum capital requirement (4.5%) $ 371,913 $ 339,910 9.4 % Minimum capital conservation buffer requirement (2.5%) $ 206,618 $ 188,839 9.4 % Minimum to be well capitalized (6.5%) $ 537,208 $ 490,981 9.4 % Tier 1 Capital to Risk-Weighted Assets 13.01% 12.36% 5.3 % Actual tier 1 risk-based capital $ 1,075,487 $ 933,494 15.2 % Minimum capital requirement (6%) $ 495,884 $ 453,214 9.4 % Minimum capital conservation buffer requirement (2.5%) $ 206,618 $ 188,839 9.4 % Minimum to be well capitalized (8%) $ 661,179 $ 604,285 9.4 % Total Capital to Risk-Weighted Assets 14.27% 13.61% 4.8 % Actual total risk-based capital $ 1,179,164 $ 1,028,126 14.7 % Minimum capital requirement (8%) $ 661,179 $ 604,285 9.4 % Minimum capital conservation buffer requirement (2.5%) $ 206,618 $ 188,839 9.4 % Minimum to be well capitalized (10%) $ 826,474 $ 755,356 9.4 % Total Tier 1 Capital to Average Total Assets 10.20% 9.42% 8.3 % Actual tier 1 capital $ 1,075,487 $ 933,494 15.2 % Minimum capital requirement (4%) $ 421,660 $ 396,525 6.3 % Minimum to be well capitalized (5%) $ 527,075 $ 495,656 6.3 % 64 OFG’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At December 31, 2023 and 2022, OFG’s market capitalization for its outstanding common stock was $1.764 billion ($37.48 per share) and $1.311 billion ($27.56 per share), respectively.
The total allowance for credit losses as of December 31, 2022 and 2021, which included loans evaluated on a collective basis, was calculated consistent with our adopted policy. OFG’s management evaluates the adequacy of the allowance for credit losses on a quarterly basis following a systematic methodology in order to provide for inherent risks in the loan portfolio.
OFG’s management evaluates the adequacy of the ACL on a quarterly basis following a systematic methodology in order to provide for inherent risks in the loan portfolio.
Income Tax Expense Comparison of the years ended December 31, 2022 and 2021 Income tax expense increased $9.4 million to $77.9 million from $68.5 million. The income tax expense for 2022 reflects greater income before taxes, increase in foreign tax withholding due to higher income from U.S. Bank subsidiary subject to lower tax rate and lower net exempt income.
Income Tax Expense Comparison of the years ended December 31, 2023 and 2022 Income tax expense increased by $5.5 million to $83.4 million from $77.9 million. OFG’s Effective Tax Rate was 31.4% in 2023 compared to 31.9% in 2022. The increase in the income tax expense was related to greater income before tax by $13.0 million.
The allowance for credit losses represents management’s best estimate deemed appropriate to provide current expected future credit losses in the portfolio as of the date of the reporting period. OFG adopted ASU No. 2016-13, Financial Instruments – Credit Losses (ASC Topic 326) as of January 1, 2020.
The provision for credit losses charged to current operations is based on this determination. The ACL represents management’s best estimate deemed appropriate to provide current expected future credit losses in the portfolio as of the date of the reporting period.
Banking and financial service revenues of $33.0 million compared to $30.3 million in the third quarter of 2022 and $36.8 million in the fourth quarter of 2021.
Total banking and financial service revenues of $32.1 million compared to $30.4 million in the third quarter of 2023 and $33.0 million in the fourth quarter of 2022. Compared to the third quarter of 2023, the fourth quarter of 2023 reflected annual insurance commission recognition of $2.5 million in wealth management revenues and lower mortgage servicing revenues.
Treasury securities during the current year and higher yield in lower balances of interest-bearing cash and money market investments related to the increase in federal fund rates; and • Increase in interest expense by $4.8 million, reflecting higher expense in inter-segment borrowing by $6.2 million as a result of higher average balance and federal funds rate increases during 2022, offset by the cancellation of $33.1 million of FHLB advances during 2021 and the early redemption of $36.1 million subordinated capital notes during 2022. 47 Table of Contents ANALYSIS OF FINANCIAL CONDITION Assets Owned At December 31, 2022, OFG’s total assets amounted to $9.819 billion, a decrease of $80.9 million, when compared to $9.900 billion at December 31, 2021.
Treasury Treasury segment net income before taxes increased by $16.2 million, mainly reflecting: • Increase of $38.5 million in interest income, reflecting the purchase of agency mortgage-backed securities and US Treasury securities during such period and higher yield in lower balances of interest-bearing cash and money market investments related to higher FRB federal funds rate than in the previous year; • Increase of $20.8 million in interest expense, reflecting higher expenses of: (i) $7.9 million from inter-segment borrowing as a result of higher average balance and FRB federal funds rate, (ii) $10.8 million in interest from a new $200 million two-year FHLB advance, (iii) $3.3 million from repurchase agreements; and • A loss of $1.1 million related to the sale of a short-term US treasury note during 2023. 46 ANALYSIS OF FINANCIAL CONDITION Assets Owned At December 31, 2023, OFG’s total assets amounted to $11.344 billion, an increase of $1.526 billion, when compared to $9.819 billion at December 31, 2022.
Mortgage loans - At December 31, 2022, OFG’s non-performing mortgage loans totaled $33.8 million (33.8% of OFG’s non-performing loans), a 15.0% decrease from $39.7 million (35.5% of OFG’s non-performing loans) at December 31, 2021. During 2022, OFG sold $21.9 million of past due mortgage loans, $4.0 million were included as non-performing assets at December 31, 2021.
Mortgage loans - At December 31, 2023, OFG’s non-performing mortgage loans totaled $20.3 million (23.8% of OFG’s non-performing loans), a 40.0% decrease from $33.8 million (33.8% of OFG’s non-performing loans) at December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOFG classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments.
Biggest changeOFG also maintains a cybersecurity risk management framework in place to assess, identify and manage risks from cybersecurity threats. Refer to “Item 1C. Cybersecurity” in this annual report on Form 10-K for furthers discussion on OFG’s cybersecurity risk management framework. OFG classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Background OFG’s risk management policies are established by its Board of Directors (the “Board”) and implemented by management through the adoption of a risk management program, which is overseen and monitored by the Chief Risk and Compliance Officer, the Board’s Risk and Compliance Committee, the executive Risk and Compliance Team, the executive Credit Risk Team, and the executive Asset/Liability Team (“ALT”).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Background OFG’s risk management policies are established by its Board of Directors (the “Board”) and implemented by management through the adoption of a risk management program, which is overseen and monitored by the Chief Risk Officer, the Board’s Risk and Compliance Committee, the executive Risk and Compliance Team, the executive Credit Risk Team, and the executive Asset/Liability Team (“ALT”).
These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. OFG uses a software application to project future movements in OFG’s balance sheet and income statement.
These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude 66 and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. OFG uses a software application to project future movements in OFG’s balance sheet and income statement.
In the event that such sources of funds are reduced or eliminated and OFG is not able to replace these on a cost-effective basis, OFG may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.
In the event that such sources of 69 funds are reduced or eliminated and OFG is not able to replace these on a cost-effective basis, OFG may be forced to curtail or cease its loan origination business and treasury activities, which would have a material adverse effect on its operations and financial condition.
Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above.
Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities will perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above.
OFG’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global securities markets or other reductions in liquidity driven by OFG or market-related events.
OFG’s efforts to monitor and manage liquidity risk may not be successful to deal with dramatic or unanticipated changes in the global or US securities markets or other reductions in liquidity driven by OFG or market-related events.
OFG’s executive Credit Risk Team, composed of its Chief Operating Officer, Chief Risk and Compliance Officer, and other senior executives, has primary responsibility for setting strategies to achieve OFG’s credit risk goals and objectives. Those goals and objectives are set forth in OFG’s Credit Policy as approved by the Board.
OFG’s executive Credit Risk Team, composed of its Chief Risk Officer, Chief Credit Officer and other senior executives, has primary responsibility for setting strategies to achieve OFG’s credit risk goals and objectives. Those goals and objectives are set forth in OFG’s Credit Policy as approved by the Board.
The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations. The following table presents the results of the simulations for the most likely scenarios at December 31, 2022.
The starting point of the projections generally corresponds to the actual values of the balance sheet on the date of the simulations. The following table presents the results of the simulations for the most likely scenarios at December 31, 2023.
OFG has a corporate compliance function headed by a Chief Risk and Compliance Officer who reports to the Chief Executive Officer and supervises the BSA Officer and Regulatory Compliance Officer. The Chief Risk and Compliance Officer is responsible for the oversight of regulatory compliance and implementation of a company-wide compliance program, including the Bank Secrecy Act/Anti-Money Laundering compliance program.
OFG has a corporate compliance function headed by the General Counsel who reports to the Chief Executive Officer and supervises the BSA Officer and Regulatory Compliance Officer. The General Counsel is responsible for the oversight of regulatory compliance and implementation of a company-wide compliance program, including the Bank Secrecy Act/Anti-Money Laundering compliance program.
Such amounts advanced are recorded as a receivable by OFG and are expected to be collected from the borrower and/or government agency (FNMA). At December 31, 2022 and 2021, OFG maintained other non-credit commitments amounting to $21.5 million and $8.9 million, respectively, primarily for the acquisition of other investments.
Such amounts advanced are recorded as a receivable by OFG and are expected to be collected from the borrower and/or government agency (FNMA). At December 31, 2023 and 2022, OFG maintained other non-credit commitments amounting to $18.9 million and $21.5 million, respectively, primarily for the acquisition of other investments.
As a consequence, OFG’s profitability and financial condition may be adversely affected by an extended economic slowdown, adverse political, fiscal or economic developments in Puerto Rico, or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio. 72 Table of Contents
As a consequence, OFG’s profitability and financial condition may be adversely affected by an extended economic slowdown, 70 adverse political, fiscal or economic developments in Puerto Rico, or the effects of a natural disaster, all of which could result in a reduction in loan originations, an increase in non-performing assets, an increase in foreclosure losses on mortgage loans, and a reduction in the value of its loans and loan servicing portfolio. 71
Others require us to focus our technology on investments that drive our strategy, namely digital, data analytics, cloud migration, cyber security, and our sales and service capabilities. At December 31, 2022 and 2021, OFG had commitments for capital expenditures in technology amounting to $8.6 million and $15.4 million, respectively, which are expected to be satisfied with OFG’s unrestricted cash.
Others require us to focus our technology on investments that drive our strategy, namely digital, data analytics, cloud migration, cyber security, and our sales and service capabilities. At December 31, 2023 and 2022, OFG had commitments for capital expenditures in technology amounting to $7.8 million and $8.6 million, respectively, which are expected to be satisfied with OFG’s unrestricted cash.
The Board has delegated the management of this risk to the ALT which is composed of certain executive officers from the business, treasury and 67 Table of Contents finance areas. One of ALT’s primary goals is to ensure that the market risk assumed by OFG is within the parameters established in such policies.
The Board has delegated the management of this risk to ALT which is composed of certain executive officers from the risk management, treasury and finance areas. One of ALT’s primary goals is to ensure that the market risk assumed by OFG is within the parameters established in such policies.
Also, for some fixed-rate assets or liabilities, the effect of this variability in earnings is expected to be substantially offset by OFG’s gains and losses on the derivative instruments that are linked to the forecasted cash flows of these hedged assets and liabilities.
Also, for some fixed-rate assets or liabilities, the effect of this variability in earnings was expected to be substantially offset by OFG’s gains and losses on the derivative instruments that were linked to the forecasted cash flows of these hedged assets and liabilities.
OFG’s goal is to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin is not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities will appreciate or depreciate in market value.
OFG’s goal was to manage interest rate sensitivity by modifying the repricing or maturity characteristics of certain balance sheet assets and liabilities so that the net interest margin was not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciated or depreciated in market value.
In executing its responsibilities, ALT considers different methods to enhance profitability while maintaining acceptable levels of interest rate risks by implementing investment, pricing and financial strategies that helps managing OFG vulnerability to changes in interest rates.
In executing its responsibilities, ALT considers different methods to enhance profitability while maintaining acceptable levels of interest rate risks by implementing investment, pricing and financial strategies that help manage OFG’s vulnerability to changes in interest rates.
These cash requirements are expected to be satisfied with OFG’s unrestricted cash. In addition, as we continue to transform OFG with a focus on simplification and building a culture of excellence and customer service, we continue to invest in technology. Some of our technology investments are table stakes and required to continuously upgrade our systems.
These cash requirements are expected to be satisfied with OFG’s unrestricted cash. In addition, as we continue to transform OFG with a focus on simplification and building a culture of excellence and customer service, we continue to invest in technology. Some of our technology investments are integrated at our long term financial plan and required to continuously upgrade our systems.
As more fully discussed below, OFG’s primary risk exposures include market, interest rate, credit, liquidity, operational and concentration risks. Market Risk Market risk is the risk to earnings or capital arising from adverse movements in market rates or prices, such as interest rates or prices. OFG evaluates market risk together with interest rate risk.
As discussed in greater detail below, OFG’s primary risk exposures include market, interest rate, credit, liquidity, operational and concentration risks. Market Risk Market risk is the risk to earnings or capital arising from adverse movements of interest rate or prices. OFG evaluates market risk together with interest rate risk.
In Puerto Rico, OFG’s principal market, we believe that recent macroeconomic conditions continue to show strength, however, as was demonstrated by Hurricane Fiona in September 2022, the January 2020 earthquakes and Hurricanes Irma and Maria in 2017, Puerto Rico is susceptible to natural disasters, which can have a disproportionate impact because of the logistical difficulties of bringing relief to an island far from the United States mainland.
However, as demonstrated by Hurricane Fiona in September 2022, the January 2020 earthquakes and Hurricanes Irma and Maria in 2017, Puerto Rico is susceptible to natural disasters, which can have a disproportionate impact because of the logistical difficulties of bringing relief to an island far from the United States mainland.
As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of OFG’s assets and liabilities, OFG has executed, in the past, certain transactions which include extending the maturity and the re-pricing frequency of the liabilities to longer terms and using hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings that only consist of short-term advances from the FHLB still outstanding as of December 31, 2022.
As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of OFG’s assets and liabilities, OFG has executed, in the past, certain transactions which included extending the maturity and the re-pricing frequency of the liabilities to longer terms and using hedge-designated swaps to hedge the variability of future interest cash flows of forecasted wholesale borrowings.
The amount of collateral obtained, if deemed necessary by OFG upon extension of credit, is based on management’s credit evaluation of the customer.
OFG evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by OFG upon extension of credit, is based on management’s credit evaluation of the customer.
Interest Rate Risk Interest rate risk is the exposure to decline in earnings or capital due to changes in interest rates. To actively monitor the interest rate risk, the Board of Directors has created the ALT whose principal responsibilities consist in overseeing the management of the Bank’s assets and liabilities to balance its risk exposures.
To actively monitor the interest rate risk, the Board of Directors created ALT whose principal responsibilities consist in overseeing the management of the Bank’s assets and liabilities to balance its risk exposures.
While OFG is able to fund its operations through deposits as well as through advances from the FHLB and other alternative sources, OFG’s business may at times need to rely upon other external wholesale funding sources. OFG has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements, subordinated notes and brokered deposits.
While OFG is able to fund its operations through deposits as well as through advances from the FHLB and other alternative sources, OFG’s business may at times need to rely upon other external wholesale funding sources.
Loans sold with recourse at December 31, 2022 and 2021 amounted to $110.9 million and $121.8 million, respectively.
Loans sold with recourse at December 31, 2023 and 2022 amounted to $98.7 million and $110.9 million, respectively.
For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.
For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag changes in market rates.
OFG considers its strategic use of derivatives to be a prudent method of managing interest-rate sensitivity as it reduces the exposure of earnings and the market value of its equity to undue risk posed by changes in interest rates.
OFG considered the strategic use of derivatives to be a prudent method of managing interest-rate sensitivity as it reduced the exposure of earnings and the market value of its equity to undue risk posed by changes in interest rates. At December 31, 2023, OFG did not have derivative instruments.
All these matters are reviewed and discussed in the executive Risk and Compliance Team and the executive Consumer Compliance Team. OFG also has a Business Continuity Plan to address situations where its capacity to perform critical functions is affected. Under such circumstances, a Crisis Management Team is activated to restore such critical functions within established timeframes.
OFG also has a Business Continuity Plan to address situations where its capacity to perform critical functions is affected. Under such circumstances, a Crisis Management Team is activated to restore such critical functions within established timeframes.
Loan commitments, which represent unused lines of credit, increased to $1.403 billion at December 31, 2022 ($214.7 million with maturity of one year or less and $1.188 billion with maturity over one year) compared to $1.365 billion at December 31, 2021 ($280.6 million with maturity of one year or less and $1.085 billion with maturity over one year), and standby letters of credit provided to customers decreased to $24.7 million compared to $25.2 million at December 31, 2021.
Loan commitments, which represent unused lines of credit, decreased to $1.256 billion at December 31, 2023 ($111.4 million with maturity of one year or less and $1.144 billion with maturity over one year) compared to $1.403 billion at December 31, 2022 ($214.7 million with maturity of one year or less and $1.188 billion with maturity over one year), and standby letters of credit provided to customers amounted to $24.0 million and $24.7 million at December 31, 2023 and 2022, respectively.
ALT strategies consider all these factors as part of the monitoring of the exposure to interest rate risk. Future net interest income could be affected by OFG’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and advances from the FHLB in which it may enter into from time to time.
Future net interest income could be affected by OFG’s investments in callable securities, prepayment risk related to mortgage loans and mortgage-backed securities, and any structured repurchase agreements and advances from the FHLB in which it may enter into from time to time.
Although OFG expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms.
Management believes that these limitations will not impact OFG’s ability to meet its ongoing short-term cash obligations. Although OFG expects to have continued access to credit from the foregoing sources of funds, there can be no assurance that such financing sources will continue to be available or will be available on favorable terms.
OFG’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as these mature, and funding of new and existing investments as required. OFG’s business requires continuous access to various funding sources.
OFG’s cash requirements principally consist of deposit withdrawals, contractual loan funding, repayment of borrowings as these mature, and funding of new and existing investments as required. OFG’s business requires continuous access to various funding sources. Liquidity to support growth in loans held for investment has been fulfilled primarily through growth in customer deposits.
With the current economic uncertainty resulting from inflation and the war in Ukraine, as well as potential Covid-19 variants, we continue monitoring our liquidity position, specifically cash on hand to meet customer demands.
With the current economic uncertainty resulting from inflation, recent geopolitical events, and increasing recessionary risk in the US, we continue monitoring our liquidity position, specifically cash on hand to meet customer demands.
Coupled with external influences such as the risk of natural disasters, market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased.
OFG faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products and services. Coupled with external influences such as the risk of natural disasters, market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased.
OFG maintains an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility.
In the past, OFG has also incorporated the use of derivative instruments to minimize significant unplanned fluctuations in earnings that were caused by interest rate volatility.
With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, OFG has specialized groups, such as Information Security, Enterprise Risk Management, Corporate Compliance, Information Technology, Legal and Operations. These groups assist the lines of business in the development and implementation of risk management practices specific to the needs of the business groups.
For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, OFG has specialized groups, such as Information Security, Enterprise Risk Management, Legal and Corporate Compliance, Information Technology, and Operations.
Commitments generally have fixed expiration dates, bear variable interest rate and may require payment of a fee. Since the commitments may expire unexercised, the total commitment amounts do not necessarily represent future cash requirements. OFG evaluates each customer’s creditworthiness on a case-by-case basis.
Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates, bear variable interest rate and may require payment of a fee. Since the commitments may expire unexercised, the total commitment amounts do not necessarily represent future cash requirements.
Net Interest Income Risk (one-year projection) Instantaneous Changes in Interest Rates Gradual Changes in Interest Rates Amount Change Percent Change Amount Change Percent Change Change in interest rate (Dollars in thousands) + 50 Basis points $ 8,528 1.54 % $ 2,722 0.49 % + 100 Basis points $ 18,838 3.41 % $ 7,142 1.29 % + 200 Basis points $ 39,495 7.15 % $ 16,020 2.90 % - 50 Basis points $ (12,459) -2.26 % $ (6,990) -1.27 % ' -100 Basis points $ (22,361) -4.05 % $ (11,191) -2.03 % The scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case.
Net Interest Income Risk (one-year projection) Instantaneous Changes in Interest Rates Gradual Changes in Interest Rates Amount Change Percent Change Amount Change Percent Change Change in interest rate (Dollars in thousands) + 50 Basis points $ 7,401 1.25 % $ 3,789 0.64 % + 100 Basis points $ 14,825 2.50 % $ 7,699 1.30 % + 200 Basis points $ 29,695 5.01 % $ 15,466 2.61 % - 50 Basis points $ (8,357) -1.41 % $ (4,213) -0.71 % ' -100 Basis points $ (16,665) -2.81 % $ (8,204) -1.38 % ' -200 Basis points $ (32,089) -5.41 % $ (17,044) -2.87 % The scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case.
Concentration Risk Most of OFG’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico.
It is not yet possible to quantify the scope of any of these actions or the potential impact on our operations. Concentration Risk Most of OFG’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico.
Even though OFG’s liquidity was impacted by loan principal and interest payment deferrals that were granted for certain customers due to the Covid-19 pandemic and Hurricane Fiona, liquidity has been growing from the federal stimulus programs Puerto Rico is receiving following Hurricane Maria in 2017, the January 2020 earthquakes, the Covid-19 pandemic and Hurricane Fiona in 2022.
Liquidity has grown from the federal stimulus programs Puerto Rico has received following Hurricane Maria in 2017, the January 2020 earthquakes, the Covid-19 pandemic, and Hurricane Fiona in 2022.
As of December 31, 2022, OFG had approximately $550.3 million in unrestricted cash and cash equivalents, $1.654 billion in investment securities that are not pledged as collateral, and $628.1 million in borrowing capacity at the FHLB. 71 Table of Contents Operational Risk Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events.
At December 31, 2023, the Bank had $419 million in securities not pledged that qualified for the BTFP. Operational Risk Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events. All functions, products and services of OFG are susceptible to operational risk.
An asset of $406 thousand was recognized at December 31, 2022 related to the valuation of these swaps. Credit Risk Credit risk is the possibility of loss arising from a borrower or counterparty in a credit-related contract failing to perform in accordance with its terms. The principal source of credit risk for OFG is its lending activities.
As of December 31, 2023, OFG has transitioned all of its financial instruments to an alternative benchmark rate by adopting the SOFR alternatives and other credit sensitive alternative reference rates. Credit Risk Credit risk is the possibility of loss arising from a borrower or counterparty in a credit-related contract failing to perform in accordance with its terms.
Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may 68 Table of Contents lag changes in market rates. Also, the ability of many borrowers to service their debts may decrease in the event of an interest rate increase.
Also, the ability of many borrowers to service their debts may decrease in the event of an interest rate increase. ALT strategies consider all these factors as part of the monitoring of the exposure to interest rate risk.
Our liquidity risk management practices have allowed us to effectively manage the market stress that began in the first quarter of 2020 from the Covid-19 pandemic. Requests for loan payment deferrals rose in the second quarter of 2020. Nevertheless, most payment deferrals ended in the third quarter of 2020.
Our liquidity risk management practices have allowed us to effectively manage the market volatility in the past, as with the Covid-19 pandemic, and in the present, with the recent disruption in the banking industry with the high-profile bank failures during the first half of 2023.
Removed
The effect of this unrealized appreciation or depreciation is expected to be substantially offset by OFG’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. Another result of interest rate fluctuation is that the contractual interest income and interest expense of hedged variable-rate assets and liabilities, respectively, will increase or decrease.
Added
In March 2023, the market reacted with volatility as a result of the collapse of three large US regional banks, which became the biggest bank failures since 2008, after they experienced a run on deposits mainly driven by a significant decrease in the value of their investments.
Removed
Derivative instruments that are used as part of OFG’s interest rate risk management strategy include interest rate swaps and option contracts that have indices related to the pricing of specific balance sheet assets and liabilities.
Added
Market reactions to recession concerns and inflationary pressure, combined with aggressive interest rate increases as part of the FRB’s efforts to control inflation during 2022 and 2023, had a significant impact on bond prices, including those guaranteed by the US government or by a US government-sponsored entity.
Removed
Interest rate swaps generally involve the exchange of fixed and variable-rate interest payments between two parties based on a common notional principal amount and maturity date. Interest rate options represent contracts that allow the holder of the option to (i) receive cash or (ii) purchase, sell, or enter into a financial instrument at a specified price within a specified period.
Added
Nevertheless, we believe that OFG has strong capital and liquidity levels that facilitate holding securities until the recovery of their amortized cost basis. We also believe that our market risk management practices have allowed us to effectively manage the market volatility over time and remained strong under these conditions.
Removed
Some purchased option contracts give OFG the right to enter into interest rate swaps and cap and floor agreements with the writer of the option. 69 Table of Contents Following is a summary of certain strategies, including derivative activities, currently used by OFG to manage interest rate risk: Interest rate swaps and borrowings — OFG uses interest rate swaps to hedge the variability of interest cash flows of certain advances from the FHLB that are tied to a variable rate index.
Added
After the events triggered by such bank failures, our customer deposits base has increased. Total core deposits at December 31, 2023 amounted to $9.600 billion compared to $8.557 billion at December 31, 2022. The FDIC covers up to $250,000 per account owner by ownership category for retail and commercial deposit accounts.
Removed
The interest rate swaps effectively fix OFG’s interest payments on these borrowings. As of December 31, 2022, OFG had $26.6 million in interest rate swaps at an average rate of 2.42% designated as cash flow hedges for $26.7 million in advances from the FHLB that reprice or are being rolled over on a monthly basis.
Added
This coverage extends to both principal and accrued interest while the account balance remains within the limits. At December 31, 2023 and 2022, the aggregate amount of our uninsured deposits was $4.885 billion and $3.498 billion, respectively.
Removed
As of December 31, 2022, OFG had $11.4 million in brokered deposits. Brokered deposits are typically offered through an intermediary to small retail investors.
Added
We have $1.618 billion of deposits from the Puerto Rico government, its instrumentalities and municipalities, which represents 17% of our total deposits as of December 31, 2023, mainly from a $1.2 billion deposit received in mid-December, as we continue to build and strengthen our customer relationships.
Removed
OFG’s ability to continue to attract brokered deposits is subject to variability based upon a number of factors, including volume and volatility in the global securities markets, OFG’s credit rating, and the relative interest rates that it is prepared to pay for these liabilities.
Added
These public funds are collateralized with securities and commercial loans amounting to $1.645 billion and $367.3 million at December 31, 2023 and 2022, respectively. The amount of these deposits may fluctuate depending on the financial condition and liquidity of these entities, as well as on our ability to maintain these customer relationships.
Removed
Brokered deposits are generally considered a less stable source of funding than core deposits obtained through retail bank branches. Investors in brokered deposits are generally more sensitive to interest rates and will generally move funds from one depository institution to another based on small differences in interest rates offered on deposits.
Added
We believe that our clients are confident in the resiliency and strong position of the Bank. Interest Rate Risk Interest rate risk is the exposure to decline in earnings or capital due to changes in interest rates.
Removed
As a result of the increase in core deposits, OFG has been limiting the offering of brokered deposits. 70 Table of Contents Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract.
Added
During 2023, OFG redeployed its high cash levels and maturing treasury positions into longer-term mortgage-backed securities.
Removed
In September 2022, Puerto Rico was declared a disaster zone by local and federal authorities due Hurricane Fiona. OFG granted loan payment accommodations to certain qualified borrowers in order to provide them with flexibility to address the hurricane’s immediate impact.
Added
These moves position OFG’s balance sheet better for the expected lower interest rate environment in the second half of 2024. 67 In July 2017, the Chief Executive of the Financial Conduct Authority (“FCA”) of the United Kingdom announced that the FCA intended to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.
Removed
All functions, products and services of OFG are susceptible to operational risk. OFG faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products and services.
Added
However, the administrator of LIBOR extended the publication of the most commonly used U.S. Dollar LIBOR settings until June 30, 2023 and ceased publishing other LIBOR settings since December 31, 2021. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using U.S.
Added
Dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by December 31, 2021.
Added
On March 15, 2022, President Biden signed into law the “Adjustable Interest Rate (LIBOR) Act,” as part of the Consolidated Appropriations Act of 2022, which provides for a statutory transition to a replacement rate selected by the FRB based on the Secured Overnight Financing Rate (“SOFR”) for contracts referencing LIBOR that contain no fallback provisions or ineffective fallback provisions, unless a replacement rate is selected by a determining person as outlined in the statute.
Added
On December 16, 2022, the FRB adopted a final rule implementing the Adjustable Interest Rate (LIBOR) Act by identifying benchmark rates based on SOFR that replaced LIBOR in certain financial contracts after June 30, 2023.
Added
The principal source of credit risk for OFG is its lending activities. In Puerto Rico, OFG’s principal market, we believe that recent macroeconomic conditions continue to show strength.
Added
OFG’s goal is to obtain as much of its funding for loans held for investment and other earning assets as possible from customer deposits, which are generated principally through development of long-term customer relationships.
Added
In December 2023, OFG received a $1.2 billion deposit in an interest-bearing checking account from an existing long-standing Puerto Rico government client who had an isolated inflow of liquidity resulting in a total of $1.618 billion deposits from the Puerto Rico government and its instrumentalities as of December 31, 2023.
Added
OFG is not relying on this deposit as part its long-term funding management strategies, even though these funds could remain in the Bank for a longer period. Deposit volumes as well as the customer deposit base, excluding the Puerto Rico government deposit mentioned above, have remained stable.
Added
OFG has selectively reduced its use of certain wholesale funding sources, such as repurchase agreements and subordinated notes, but depending on its assets and 68 liabilities management strategies, it could use them in the future.
Added
In 2023, OFG received a $200.0 million 2-year FHLB advance with a weighted average interest rate of 4.52%, and as of December 31, 2023, had $162.2 million in brokered deposits. Most of the brokered deposits at December 31, 2023 will mature early in the first quarter of 2024.
Added
The interim increase in wholesale funding during 2023 reflected asset and liability management strategies that involved a short-term need of increased liquidity. OFG expects to continue using excess deposits to reduce wholesale funding. In addition, approximately $500 million US Treasury securities will mature during the first semester of 2024, which will provide additional funds.
Added
In the ordinary course of OFG’s operations, it has entered into certain contractual obligations and has made other commitments to make future payments. OFG believes that it will be able to meet its contractual obligations as they come due through the maintenance of adequate cash levels.
Added
OFG expects to maintain adequate cash levels through profitability, loan and securities repayment and maturity activity and continued deposit gathering activities.
Added
In addition, as OFG is a holding company and is a separate operating entity from the Bank, OFG’s primary sources of liquidity are dividends received from the Bank and borrowings from outside sources. Banking regulations may limit the amount of dividends that may be paid by the Bank.
Added
As of December 31, 2023, OFG had approximately $748.2 million in unrestricted cash and cash equivalents, $1.024 billion in investment securities that are not pledged as collateral, $446.0 million in borrowing capacity at the FHLB and a secured line of credit through the FRB discount window with $1.240 billion in loans pledged (borrowing capacity $770.0 million).
Added
Also starting with the first quarter 2023, the Bank is eligible to borrow from the FRB's Bank Term Funding Program (“BTFP”), which provides additional contingent liquidity through the pledge of certain qualifying securities and other assets.

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