UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193

For the quarterly period ended March 31, 2022

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-12647

OFG Bancorp

Incorporated in the Commonwealth of Puerto Rico, IRS Employer Identification No. 66-0538893

Principal Executive Offices:

254Muñoz Rivera Avenue

San Juan, Puerto Rico 00918

Telephone Number: (787) 771-6800

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, par value $1.00 per share	OFG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þNo ¨

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

Large Accelerated Filer	☑	Accelerated Filer	☐	Non-Accelerated Filer	☐	Smaller Reporting Company	☐
						Emerging Growth Company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ☑

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

48,601,548 common shares ($1.00 par value per share) outstanding as of April 30, 2022

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		Page
Item 1.	Financial Statements
	Unaudited Consolidated Statements of Financial Condition	3
	Unaudited Consolidated Statements of Operations	5
	Unaudited Consolidated Statements of Comprehensive Income	7
	Unaudited Consolidated Statements of Changes in Stockholders’ Equity	8
	Unaudited Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements
	Note 1 – Significant Accounting Policies	12
	Note 2 – Restricted Cash	13
	Note 3 – Investment Securities	13
	Note 4 – Loans	18
	Note 5 – Allowance for Credit Losses	31
	Note 6 – Foreclosed Real Estate	32
	Note 7 – Servicing Assets	33
	Note 8 – Derivatives	34
	Note 9 – Goodwill and Other Intangible Assets	34
	Note 10 – Accrued Interest Receivable and Other Assets	35
	Note 11 – Deposits and Related Interest	36
	Note 12 – Borrowings and Related Interest	38
	Note 13– Income Taxes	38
	Note 14 – Regulatory Capital Requirements	39
	Note 15 – Stockholders’ Equity	40
	Note 16 – Accumulated Other Comprehensive(Loss)Income	42
	Note 17 – Earnings per Common Share	43
	Note 18 – Guarantees	43
	Note 19 – Commitments and Contingencies	45
	Note 20 – Operating Leases	48
	Note 21 – Fair Value of Financial Instruments	49
	Note 22 – Banking and Financial Service Revenues	55
	Note 23 – Business Segments	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59
	Critical Accounting Policies and Estimates	60
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	88
Item 4.	Controls and Procedures	93
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	93
Item 1A.	Risk Factors	93
Item2.	UnregisteredSales ofEquitySecurities andUse ofProceeds	93
Item 3.	Default upon Senior Securities	94
Item 4.	Mine Safety Disclosures	94
Item 5.	Other Information	94
Item 6.	Exhibits	95
Signatures		96

FORWARD-LOOKING STATEMENTS

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

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

•the rate of growth in the economy and employment levels, inflationary pressures or recessionary conditions, as well as general business and economic conditions;

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

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

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

•determinations in the court-supervised debt-restructuring process under Title III of PROMESA for the Puerto Rico government and all of its agencies, including some of its public corporations, as well as the ability to successfully implement any court-approved plan of adjustment;

•unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters, pandemics, war or other international conflicts, or utility disruptions, which could cause a disruption in our operations or other adverse consequences for our business;

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

•the amount of government, private and philanthropic financial assistance for the reconstruction of Puerto Rico’s critical infrastructure, which suffered catastrophic damages caused by hurricane Maria in 2017 and earthquakes in 2020;

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

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

•changes in federal bank regulatory and supervisory policies, including with respect to required levels of capital;

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

•the performance of the stock and bond markets;

•competition in the financial services industry;

•possible legislative, tax or regulatory changes;

•the magnitude and duration of the Covid-19 pandemic and its impact on the United States, Puerto Rico, and/or global economy, financial market conditions and our business, results of operations and financial condition; and

•the impact of the actions taken by governmental authorities to try and contain the Covid-19 virus and its variants or address the impact of the virus on the United States and Puerto Rico economy, and the resulting effect of all of such items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers.

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

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

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021

	March 31,		December 31,
	2022		2021
	(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	1,849,906	$	2,014,523
Money market investments	5,648		8,952
Total cash and cash equivalents	1,855,554		2,023,475
Restricted cash	175		175
Investments:
Trading securities, at fair value, with amortized cost of $163 (December 31, 2021 - $162)	18		20
Investment securities available-for-sale, at fair value, with amortized cost of $903,798<br><br>(December 31, 2021, amortized cost $503,421); no allowance for credit losses	880,338		510,713
Investment securities held-to-maturity, at amortized cost, with fair value of $329,969 (December 31, 2021 - $363,653); no allowance for credit losses	359,806		367,507
Equity securities	18,556		17,578
Total investments	1,258,718		895,818
Loans:
Loans held-for-sale, at lower of cost or fair value	58,234		82,662
Loans held for investment, net of allowance for credit losses of $157,075 (December 31, 2021 - $155,937)	6,390,896		6,246,649
Total loans	6,449,130		6,329,311
Other assets:
Foreclosed real estate	15,297		15,039
Accrued interest receivable	56,097		56,560
Deferred tax asset, net	87,608		99,063
Premises and equipment, net	97,403		92,124
Customers' liability on acceptances	29,858		35,329
Servicing assets	49,446		48,973
Goodwill	86,069		86,069
Other intangible assets	33,947		36,093
Operating lease right-of-use assets	28,576		28,846
Other assets	142,242		152,845
Total assets	$	10,190,120	$	9,899,720

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF MARCH 31, 2022 AND DECEMBER 31, 2021 (CONTINUED)

	March 31,		December 31,
	2022		2021
	(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	5,504,640	$	5,204,340
Savings accounts	2,295,113		2,177,780
Time deposits	1,178,469		1,220,998
Total deposits	8,978,222		8,603,118
Borrowings:
Advances from FHLB	28,035		28,488
Subordinated capital notes	—		36,083
Total borrowings	28,035		64,571
Other liabilities:
Derivative liabilities	191		804
Acceptances executed and outstanding	29,858		35,329
Operating lease liabilities	30,287		30,498
Accrued expenses and other liabilities	83,492		96,240
Total liabilities	9,150,085		8,830,560
Commitments and contingencies (See Note 19)
Stockholders’ equity:
Common stock, $1 par value; 100,000,000 shares authorized; 59,885,234 shares issued: 48,673,113 shares outstanding (December 31, 2021 - 59,885,234 shares issued; 49,636,352 shares outstanding)	59,885		59,885
Additional paid-in capital	633,796		637,061
Legal surplus	121,389		117,677
Retained earnings	426,320		399,949
Treasury stock, at cost, 11,212,121 shares (December 31, 2021 - 10,248,882 shares)	(180,717)		(150,572)
Accumulated other comprehensive (loss) income, net of tax of $3,007 (December 31, 2021 - $1,328)	(20,638)		5,160
Total stockholders’ equity	1,040,035		1,069,160
Total liabilities and stockholders’ equity	$	10,190,120	$	9,899,720

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021

	Quarter Ended March 31,
	2022		2021
	(In thousands, except per share data)
Interest income:
Loans	$	107,565	$	108,205
Mortgage-backed securities	4,321		2,041
Investment securities and other	1,063		730
Total interest income	112,949		110,976
Interest expense:
Deposits	7,041		12,024
Advances from FHLB and other borrowings	193		459
Subordinated capital notes	521		295
Total interest expense	7,755		12,778
Net interest income	105,194		98,198
Provision for credit losses	1,551		6,324
Net interest income after provision for credit losses	103,643		91,874
Non-interest income:
Banking service revenue	17,562		16,497
Wealth management revenue	7,857		7,388
Mortgage banking activities	5,782		5,573
Total banking and financial service revenues	31,201		29,458
Other non-interest income	405		955
Total non-interest income, net	31,606		30,413

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021 (CONTINUED)

	Quarter Ended March 31,
	2022		2021
	(In thousands, except per share data)
Non-interest expense:
Compensation and employee benefits	34,768		32,618
Occupancy, equipment and infrastructure costs	11,916		13,128
Electronic banking charges	9,786		8,232
Information technology expenses	4,804		4,254
Professional and service fees	5,421		4,536
Taxes, other than payroll and income taxes	3,307		3,661
Insurance	2,635		2,455
Foreclosed real estate and other repossessed assets income, net of expenses	(1,482)		(50)
Loan servicing and clearing expenses	1,922		1,841
Advertising, business promotion, and strategic initiatives	2,062		1,431
Communication	1,116		966
Printing, postage, stationary and supplies	1,092		1,217
Director and investor relations	249		300
Pandemic expenses	881		1,769
Other	2,678		1,308
Total non-interest expense	81,155		77,666
Income before income taxes	54,094		44,621
Income tax expense	16,573		14,248
Net income	37,521		30,373
Less: dividends on preferred stock	—		(1,255)
Income available to common shareholders	$	37,521	$	29,118
Earnings per common share:
Basic	$	0.77	$	0.57
Diluted	$	0.76	$	0.56
Average common shares outstanding and equivalents	49,484		51,752
Cash dividends per share of common stock	$	0.15	$	0.08

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Net income	$	37,521	$	30,373
Other comprehensive loss before tax:
Unrealized loss on securities available-for-sale	(30,752)		(5,367)
Unrealized gain on cash flow hedges	619		247
Other comprehensive loss before taxes	(30,133)		(5,120)
Income tax effect	4,335		328
Other comprehensive loss after taxes	(25,798)		(4,792)
Comprehensive income	$	11,723	$	25,581

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Preferred stock:
Balance at beginning of period	$	—	$	92,000
Balance at end of period	—		92,000
Common stock:
Balance at the beginning and end of period	59,885		59,885
Additional paid-in capital:
Balance at beginning of period	637,061		622,652
Stock-based compensation expense	973		2,209
Lapsed restricted stock units	(4,238)		(1,926)
Balance at end of period	633,796		622,935
Legal surplus:
Balance at beginning of period	117,677		103,269
Transfer from retained earnings	3,712		2,896
Balance at end of period	121,389		106,165
Retained earnings:
Balance at beginning of period	399,949		300,096
Net income	37,521		30,373
Cash dividends declared on common stock[1]	(7,438)		(4,116)
Cash dividends declared on preferred stock	—		(1,255)
Transfer to legal surplus	(3,712)		(2,896)
Balance at end of period	426,320		322,202
Treasury stock:
Balance at beginning of period	(150,572)		(102,949)
Stock repurchased	(33,479)		—
Lapsed restricted stock units and options	3,334		1,955
Balance at end of period	(180,717)		(100,994)
Accumulated other comprehensive income (loss), net of tax:
Balance at beginning of period	5,160		11,022
Other comprehensive loss, net of tax	(25,798)		(4,792)
Balance at end of period	(20,638)		6,230
Total stockholders’ equity	$	1,040,035	$	1,108,423

[1] Dividends declared per common share during the quarter ended March 31, 2022 - $0.15 (March 31, 2021 - $0.08).

See notes to unaudited consolidated financial statements

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OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Cash flows from operating activities:
Net income	$	37,521	$	30,373
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan origination fees and fair value (discounts) premiums on loans	(723)		51
Amortization of investment securities premiums, net of accretion of discounts	599		787
Amortization of other intangible assets	2,146		2,451
Net change in operating leases	59		120
Depreciation and amortization of premises and equipment	3,780		3,366
Deferred income tax expense, net	15,789		8,451
Provision for credit losses	1,551		6,324
Stock-based compensation	973		2,209
(Gain) loss on:
Sale of loans	(899)		(1,894)
Early extinguishment of debt	(42)		—
Foreclosed real estate and other repossessed assets	(4,157)		(1,583)
Sale of other assets	6		(181)
Originations and purchases of loans held-for-sale	(56,954)		(92,264)
Proceeds from sale of loans held-for-sale	57,261		62,886
Net decrease (increase) in:
Trading securities	2		(1)
Accrued interest receivable	478		4,519
Servicing assets	(473)		(616)
Other assets	11,298		(7,190)
Net (decrease) increase in:
Accrued interest on deposits and borrowings	(152)		(291)
Accrued expenses and other liabilities	(28,860)		18,887
Net cash provided by operating activities	39,203		36,404
See notes to unaudited consolidated financial statements

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OFG BANCORP<br><br>UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS<br><br>FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021 (CONTINUED)
	Quarter Ended March 31,
	2022		2021
	(In thousands)
Cash flows from investing activities:
Purchases of:
Investment securities available-for-sale	(399,025)		(25,894)
Investment securities held-to-maturity	—		(126,777)
Equity securities	(998)		(1,595)
Maturities and redemptions of:
Investment securities available-for-sale	22,170		25,218
Investment securities held-to-maturity	7,540		—
FHLB stock	20		45
Proceeds from sales of:
Foreclosed real estate and other repossessed assets, including write-offs	13,090		10,159
Premises and equipment	—		580
Origination and purchase of loans, excluding loans held-for-sale	(770,935)		(435,363)
Principal repayment of loans	612,039		470,510
Additions to premises and equipment	(9,072)		(3,564)
Net cash used in investing activities	$	(525,171)	$	(86,681)
Cash flows from financing activities:
Net increase (decrease) in:
Deposits	394,932		310,712
Subordinated capital notes	(36,041)		—
FHLB advances, federal funds purchased, and other borrowings	(458)		(1,254)
Exercise of stock options with treasury shares	(904)		29
Purchase of treasury stock	(33,479)		—
Dividends paid on preferred stock	—		(1,255)
Dividends paid on common stock	(6,003)		(4,116)
Net cash provided by financing activities	$	318,047	$	304,116
Net change in cash, cash equivalents and restricted cash	(167,921)		253,839
Cash, cash equivalents and restricted cash at beginning of period	2,023,650		2,155,577
Cash, cash equivalents and restricted cash at end of period	$	1,855,729	$	2,409,416
	Quarter Ended March 31,
	2022		2021
	(In thousands)
Reconciliation of the Consolidated Statements of Cash Flows to the Consolidated Statements of Financial Condition:
Cash and due from banks	$	1,849,906	$	2,396,965
Money market investments	5,648		11,401
Restricted cash	175		1,050
Total cash, cash equivalents, restricted cash and restricted cash equivalents at end of period	$	1,855,729	$	2,409,416
See notes to unaudited consolidated financial statements

Table of Contents

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Supplemental Cash Flow Disclosure and Schedule of Non-cash Activities:
Interest paid	$	6,270	$	9,393
Income taxes paid	$	1,475	$	—
Operating lease liabilities paid	$	2,496	$	3,253
Mortgage loans held-for-sale securitized into mortgage-backed securities	$	23,960	$	30,040
Transfer from loans to foreclosed real estate and other repossessed assets	$	10,294	$	13,583
Reclassification of loans held-for-sale portfolio to held-for-investment portfolio	$	459	$	4,544
Financed sales of foreclosed real estate	$	422	$	53
Delinquent loans booked under the GNMA buy-back option	$	9,664	$	40,777

See notes to unaudited consolidated financial statements

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

OFG is a publicly-owned financial holding company incorporated under the laws of the Commonwealth of Puerto Rico. OFG operates through various subsidiaries including, a commercial bank, Oriental Bank (the “Bank”), a securities broker-dealer and investment adviser, Oriental Financial Services LLC (“Oriental Financial Services”), an insurance agency, Oriental Insurance, LLC (“Oriental Insurance”), a captive reinsurance company organized under the laws of the Cayman Islands, OFG Reinsurance Ltd (“OFG Reinsurance”), and a retirement plan administrator, Oriental Pension Consultants, Inc. (“OPC”), and OFG Ventures LLC (“OFG Ventures”), which holds investments. Through these subsidiaries and their respective divisions, OFG provides a wide range of banking and financial services such as commercial, consumer and mortgage lending, leasing, auto loans, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services.

Basis of Presentation

The accompanying unaudited consolidated financial statements of OFG have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and in accordance with guidance provided by the Securities and Exchange Commission. Accordingly, these consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of OFG on a consolidated basis, and all such adjustments are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Operating results for three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The Company evaluated subsequent events through the filing date of its quarterly report on Form 10-Q with the SEC and has recorded or disclosed those material events or transactions as described within the accompanying consolidated financial statements and notes.

New Accounting Updates Adopted in 2022

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. In August 2020, the FASB issued ASU 2020-06 to clarify the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature model. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in-capital. In addition, this ASU improves disclosure requirements for convertible instruments and earnings-per-share guidance. The ASU also revises the derivative scope exception guidance to reduce form-over-substance-based accounting conclusions driven by remote contingent events. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Our adoption of this standard did not have a material impact on our financial statements.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Lessors—Certain Leases with Variable Lease Payments. FASB ASC 842 – In July 2021, the FASB issued ASU 2021-05 to amend the lease classification requirements for lessors to align them with practice under ASC Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in ASC paragraphs 842-10-25-2 through 25-3; and (2) The lessor would have otherwise recognized a day-one loss. When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The amendments in this update are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Our adoption of this standard did not have a material impact on our financial statements.

New Accounting Updated Not Yet Adopted

Derivatives and Hedging (Topic 815) Fair Value Hedging—Portfolio Layer Method. In March 2022, the FASB issued ASU 2022-01 to allow non-prepayable financial assets also to be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedge. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted on any date on or after the issuance of this ASU for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. If an entity adopts the amendments in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of the fiscal year of adoption. OFG will adopt this guidance when it becomes effective and the impact on our financial statements is not expected to be material.

Financial Instruments—Credit Losses Troubled Debt Restructurings and Vintage Disclosures. In March 2022, the FASB issued ASU 2022-02 to address the accounting guidance on troubled debt restructurings (TDRs) for creditors in ASC 310-402 and amend the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty. The amendments in this update are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Entities are permitted to early adopt these amendments, including adoption in any interim period, provided that the amendments are adopted as of the beginning of the annual reporting period that includes the interim period of adoption. In addition, entities are permitted to elect to early adopt the amendments related to TDR accounting and related disclosure enhancements separately from the amendments related to the vintage disclosures. OFG is currently evaluating the impact on the consolidated financial statements upon adoption of this standard.

NOTE 2 – RESTRICTED CASH

OFG has a contract with FNMA which requires collateral to guarantee the repurchase, if necessary, of loans sold with recourse. At both March 31, 2022 and December 31, 2021, OFG delivered as collateral cash amounting to approximately $175 thousand.

The Bank is required by Puerto Rico law to maintain average weekly reserve balances to cover demand deposits. The amount of those minimum average reserve balances for the week that covered March 31, 2022 was $481.3 million (December 31, 2021 - $456.5 million). At March 31, 2022 and December 31, 2021, the Bank complied with this requirement. Cash and due from bank as well as other short-term, highly liquid securities, are used to cover the required average reserve balances.

NOTE 3 – INVESTMENT SECURITIES

Money Market Investments

OFG considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At March 31, 2022 and December 31, 2021, money market instruments included as part of cash and cash equivalents amounted to $5.6 million and $9.0 million, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, weighted average yield and contractual maturities of the securities owned by OFG at March 31, 2022 and December 31, 2021 were as follows:

	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair<br>Value		Weighted Average Yield
	(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates
Due from 1 to 5 years	2,020		—		5		$	2,015	2.13	%
Due from 5 to 10 years	$	82,101	$	2	$	1,168	$	80,935	1.94	%
Due after 10 years	490,169		—		14,229		$	475,940	2.25	%
Total FNMA and FHLMC certificates	574,290		2		15,402		558,890		2.21	%
GNMA Securities
Due from 1 to 5 years	16,836		—		146		16,690		1.63	%
Due from 5 to 10 years	16,470		—		327		16,143		1.88	%
Due after 10 years	261,712		872		8,221		254,363		2.40	%
Total GNMA certificates	295,018		872		8,694		287,196		2.32	%
CMOs issued by US government-sponsored agencies
Due from 1 to 5 years	1,523		—		24		1,499		1.70	%
Due from 5 to 10 years	18,584		—		300		18,284		1.80	%
Due after 10 years	1,325		1		4		1,322		4.53	%
Total CMOs issued by US government-sponsored agencies	21,432		1		328		21,105		1.96	%
Total mortgage-backed securities	890,740		875		24,424		867,191		2.24	%
Investment securities
US Treasury securities
Due less than 1 year	10,735		28		—		10,763		1.49	%
Total US Treasury Securities	10,735		28		—		10,763		1.49	%
Other debt securities
Due less than 1 year	500		—		—		500		0.57	%
Due from 1 to 5 years	1,823		61		—		1,884		5.46	%
Total Other debt securities	2,323		61		—		2,384		4.41	%
Total investment securities	13,058		89		—		13,147		2.01	%
Total securities available for sale	$	903,798	$	964	$	24,424	$	880,338	2.24	%
	March 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair<br>Value		Weighted Average Yield
	(In thousands)
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates
Due after 10 years	$	359,806	$	—	$	29,837	$	329,969	1.71	%

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair<br>Value		Weighted Average Yield
	(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates
Due from 5 to 10 years	90,560		2,502		—		93,062		1.94	%
Due after 10 years	93,440		—		3,200		90,240		1.37	%
Total FNMA and FHLMC certificates	184,000		2,502		3,200		183,302		1.65	%
GNMA Securities
Due from 1 to 5 years	10,536		233		1		10,768		1.66	%
Due from 5 to 10 years	26,419		556		—		26,975		1.80	%
Due after 10 years	244,106		6,927		198		250,835		2.40	%
Total GNMA certificates	281,061		7,716		199		288,578		2.32	%
CMOs issued by US government-sponsored agencies
Due from 1 to 5 years	1,788		22		—		1,810		1.70	%
Due from 5 to 10 years	20,705		299		—		21,004		1.81	%
Due after 10 years	1,601		16		1		1,616		4.24	%
Total CMOs issued by US government-sponsored agencies	24,094		337		1		24,430		1.96	%
Total mortgage-backed securities	489,155		10,555		3,400		496,310		2.05	%
Investment securities
US Treasury securities
Due less than 1 year	10,737		88		—		10,825		1.48	%
Total US Treasury Securities	10,737		88		—		10,825		1.48	%
Obligations of US government-sponsored agencies
Due less than 1 year	1,182		1		—		1,183		1.40	%
Total Obligations of US government-sponsored agencies	1,182		1		—		1,183		1.40	%
Other debt securities
Due less than 1 year	500		—		—		500		0.57	%
Due from 1 to 5 years	1,847		48		—		1,895		5.43	%
Total Other debt securities	2,347		48		—		2,395		4.39	%
Total investment securities	14,266		137		—		14,403		1.95	%
Total securities available for sale	$	503,421	$	10,692	$	3,400	$	510,713	2.05	%
	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair<br>Value		Weighted Average Yield
	(In thousands)
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates
Due after 10 years	367,507		—		3,854		363,653		1.71	%

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Investment securities as of March 31, 2022 include $200.4 million pledged to secure government deposits, derivatives and regulatory collateral that the secured parties are not permitted to sell or repledge the collateral, of which $199.7 million serve as collateral for public funds. Investment securities as of December 31, 2021 include $145.6 million pledged to secure government deposits, derivatives and regulatory collateral that the secured parties are not permitted to sell or repledge the collateral, of which $143.8 million serve as collateral for public funds.

The weighted average yield on debt securities available-for-sale is based on amortized cost and does not give effect to changes in fair value. Weighted average yields on tax-exempt obligations have been computed on a fully taxable equivalent basis.

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

At March 31, 2022 and December 31, 2021, most securities held by OFG are issued by U.S. government entities and agencies that have a zero-credit loss assumption.

At both March 31, 2022 and December 31, 2021, the Bank’s international banking entities held short-term US Treasury securities in the amount of $305 thousand and $325 thousand, respectively, as the legal reserve required for international banking entities under Puerto Rico law. These instruments cannot be withdrawn or transferred without the prior written approval of the Office of the Commissioner of Financial Institutions of Puerto Rico (“OCFI”).

During the quarters ended March 31, 2022 and 2021, OFG retained securitized GNMA pools totaling $24.0 million and $30.0 million amortized cost, respectively, at a yield of 2.37% and 2.22%, from its own originations.

There were no sales of securities during the quarters ended March 31, 2022 and 2021.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table show OFG’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity at March 31, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	March 31, 2022
	12 months or more
	Amortized<br>Cost		Unrealized<br>Loss		Fair<br>Value
	(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates	91,258		9,884		81,374
GNMA certificates	4,237		256		3,981
	$	95,495	$	10,140	$	85,355
	March 31, 2022
	Less than 12 months
	Amortized<br>Cost		Unrealized<br>Loss		Fair<br>Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	20,744		328		20,416
FNMA and FHLMC certificates	481,614		5,518		476,096
GNMA certificates	273,405		8,438		264,967
	$	775,763	$	14,284	$	761,479
Held-to-maturity
FNMA and FHLMC certificates	$	359,806	$	29,837	$	329,969
	March 31, 2022
	Total
	Amortized<br>Cost		Unrealized<br>Loss		Fair<br>Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	20,744		328		20,416
FNMA and FHLMC certificates	572,872		15,402		557,470
GNMA certificates	277,642		8,694		268,948
	$	871,258	$	24,424	$	846,834
Held-to-maturity
FNMA and FHLMC certificates	$	359,806	$	29,837	$	329,969

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2021
	Less than 12 months
	Amortized<br>Cost		Unrealized<br>Loss		Fair<br>Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	500		1		499
FNMA and FHLMC certificates	93,440		3,200		90,240
GNMA certificates	5,022		199		4,823
	$	98,962	$	3,400	$	95,562
Held-to-maturity
FNMA and FHLMC certificates	$	367,507	$	3,854	$	363,653

OFG had no investment securities in a continuous loss position for 12 months or more at December 31, 2021.

NOTE 4 - LOANS

OFG’s loan portfolio is composed of four segments, commercial, mortgage, consumer, and auto loans and leases. Loans are further segregated into classes which OFG uses when assessing and monitoring the risk and performance of the portfolio. The composition of the amortized cost basis of OFG’s loan portfolio at March 31, 2022 and December 31, 2021 was as follows:

	March 31, 2022						December 31, 2021
	Non-PCD		PCD		Total		Non-PCD		PCD		Total
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	925,644	$	163,865	$	1,089,509	$	883,994	$	176,186	$	1,060,180
Other commercial and industrial	805,499		26,761		832,260		759,172		28,149		787,321
Other commercial and industrial - Paycheck Protection Program (PPP Loans)	53,277		—		53,277		86,889		—		86,889
US commercial loans	524,868		—		524,868		444,940		—		444,940
	2,309,288		190,626		2,499,914		2,174,995		204,335		2,379,330
Mortgage	704,277		1,144,364		1,848,641		718,848		1,188,423		1,907,271
Consumer:
Personal loans	395,656		478		396,134		346,859		546		347,405
Credit lines	13,920		355		14,275		14,775		370		15,145
Credit cards	45,145		—		45,145		46,795		—		46,795
Overdraft	238		—		238		330		—		330
	454,959		833		455,792		408,759		916		409,675
Auto and leasing	1,732,859		10,765		1,743,624		1,693,029		13,281		1,706,310
	5,201,383		1,346,588		6,547,971		4,995,631		1,406,955		6,402,586
Allowance for credit losses	(137,344)		(19,731)		(157,075)		(132,065)		(23,872)		(155,937)
Total loans held for investment, net	5,064,039		1,326,857		6,390,896		4,863,566		1,383,083		6,246,649
Mortgage loans held for sale	26,761		—		26,761		51,096		—		51,096
Other loans held for sale	31,473		—		31,473		31,566		—		31,566
Total loans held for sale	58,234		—		58,234		82,662		—		82,662
Total loans, net	$	5,122,273	$	1,326,857	$	6,449,130	$	4,946,228	$	1,383,083	$	6,329,311

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During quarter ended on March 31, 2022, OFG sold $21.9 million of past due mortgage loans held for sale. These mortgage loans were transferred to held for sale during the fourth quarter of 2021.

At March 31, 2022 and December 31, 2021, OFG had carrying balances of $86.1 million and $87.3 million, respectively, in loans held for investment granted to the Puerto Rico government, including its municipalities and public corporations, as part of the commercial loan segment. The Bank’s loans to the Puerto Rico government amounting to $86.1 million and $86.2 million at March 31, 2022 and December 31, 2021, respectively, are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities in current status. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. At December 31, 2021, total loan exposure to the Puerto Rico government included a $1.1 million acquired PCD loan granted to a public corporation classified as non-accrual, which was repaid during the quarter ended March 31, 2022.

The tables below present the aging of the amortized cost of loans held for investment at March 31, 2022 and December 31, 2021, by class of loans. Mortgage loans past due include $9.7 million and $14.5 million of delinquent loans in the GNMA buy-back option program at March 31, 2022 and December 31, 2021, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

	March 31, 2022
	30-59 Days<br>Past Due		60-89 Days<br>Past Due		90+ Days<br>Past Due		Total Past<br>Due		Current		Total Loans		Loans 90+<br>Days Past<br>Due and<br>Still<br>Accruing
	(In thousands)
Commercial
Commercial secured by real estate	$	612	$	443	$	12,494	$	13,549	$	912,095	$	925,644	$	—
Other commercial and industrial	1,189		356		966		2,511		856,265		858,776		—
US commercial loans	—		—		—		—		524,868		524,868		—
	1,801		799		13,460		16,060		2,293,228		2,309,288		—
Mortgage	5,835		7,943		34,883		48,661		655,616		704,277		2,099
Consumer
Personal loans	3,097		1,690		1,290		6,077		389,579		395,656		—
Credit lines	416		153		110		679		13,241		13,920		—
Credit cards	669		405		559		1,633		43,512		45,145		—
Overdraft	61		—		—		61		177		238		—
	4,243		2,248		1,959		8,450		446,509		454,959		—
Auto and leasing	54,635		24,856		12,364		91,855		1,641,004		1,732,859		—
Total loans	$	66,514	$	35,846	$	62,666	$	165,026	$	5,036,357	$	5,201,383	$	2,099

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2021
	30-59 Day<br>Past Due		60-89 Days<br>Past Due		90+ Days<br>Past Due		Total Past<br>Due		Current		Total Loans		Loans 90+<br>Days Past<br>Due and<br>Still<br>Accruing
	(In thousands)
Commercial
Commercial secured by real estate	$	2,210	$	102	$	8,446	$	10,758	$	873,236	$	883,994	$	—
Other commercial and industrial	1,886		538		946		3,370		842,691		846,061		—
US commercial loans	—		—		—		—		444,940		444,940		—
	4,096		640		9,392		14,128		2,160,867		2,174,995		—
Mortgage	8,704		7,855		43,468		60,027		658,821		718,848		2,346
Consumer
Personal loans	2,382		1,131		1,116		4,629		342,230		346,859		—
Credit lines	531		141		227		899		13,876		14,775		—
Credit cards	610		336		631		1,577		45,218		46,795		—
Overdraft	130		14		—		144		186		330		—
	3,653		1,622		1,974		7,249		401,510		408,759		—
Auto and leasing	60,038		30,234		13,461		103,733		1,589,296		1,693,029		—
Total loans	$	76,491	$	40,351	$	68,295	$	185,137	$	4,810,494	$	4,995,631	$	2,346

Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the tables above.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Non-accrual Loans

The following table presents the amortized cost basis of loans on nonaccrual status as of March 31, 2022 and December 31, 2021:

	March 31, 2022						December 31, 2021
	Non-accrual with Allowance for Credit Loss		Non-accrual with no Allowance for Credit Loss		Total		Non-accrual with Allowance for Credit Loss		Non-accrual with no Allowance for Credit Loss		Total
	(In thousands)
Non-PCD:
Commercial
Commercial secured by real estate	$	15,703	$	17,864	$	33,567	$	16,299	$	19,538	$	35,837
Other commercial and industrial	1,009		317		1,326		1,284		483		1,767
	16,712		18,181		34,893		17,583		20,021		37,604
Mortgage	22,642		3,562		26,204		16,428		12,840		29,268
Consumer
Personal loans	1,008		353		1,361		1,143		302		1,445
Personal lines of credit	110		—		110		226		—		226
Credit cards	559		—		559		632		—		632
	1,677		353		2,030		2,001		302		2,303
Auto and leasing	12,492		3		12,495		19,827		2		19,829
Total	$	53,523	$	22,099	$	75,622	$	55,839	$	33,165	$	89,004
PCD:
Commercial
Commercial secured by real estate	$	3,682	$	7,155	$	10,837	$	5,205	$	6,198	$	11,403
Other commercial and industrial	—		40		40		1,102		40		1,142
	3,682		7,195		10,877		6,307		6,238		12,545
Mortgage	310		—		310		334		—		334
Total	$	3,992	$	7,195	$	11,187	$	6,641	$	6,238	$	12,879
Total non-accrual loans	$	57,515	$	29,294	$	86,809	$	62,480	$	39,403	$	101,883

The determination of nonaccrual or accrual status of PCD loans is made at the pool level, not the individual loan level.

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans.

At March 31, 2022 and December 31, 2021, loans whose terms have been extended and which were classified as troubled-debt restructurings that were not included in non-accrual loans amounted to $123.4 million and $125.9 million, respectively, as they were performing under their new terms.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Modifications

OFG offers various types of concessions when modifying a loan. Concessions made to the original contractual terms of the loan typically consists of the deferral of interest and/or principal payments due to deterioration in the borrowers' financial condition. In these cases, the principal balance on the TDR had matured and/or was in default at the time of restructure. The amount of outstanding commitments to lend additional funds to commercial borrowers whose terms have been modified in TDRs amounted to $3.4 million and $3.7 million at March 31, 2022 and December 31, 2021, respectively.

The following table presents the troubled-debt restructurings in all loan portfolios as of March 31, 2022 and December 31, 2021.

	March 31, 2022								December 31, 2021
	Accruing		Non-accruing		Total		Related Allowance		Accruing		Non-accruing		Total		Related Allowance
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	6,505	$	14,476	$	20,981	$	118	$	10,981	$	14,444	$	25,425	$	202
Other commercial and industrial	2,802		301		3,103		72		2,785		473		3,258		41
US commercial loans	7,143		—		7,143		126		7,156		—		7,156		126
	16,450		14,777		31,227		316		20,922		14,917		35,839		369
Mortgage	103,962		9,572		113,534		3,685		101,487		9,475		110,962		3,867
Consumer:
Personal loans	2,874		71		2,945		141		3,275		139		3,414		159
Auto and leasing	141		—		141		5		203		8		211		11
Total loans	$	123,427	$	24,420	$	147,847	$	4,147	$	125,887	$	24,539	$	150,426	$	4,406

The following tables present the troubled-debt restructurings by loan portfolios and modification type as of March 31, 2022 and December 31, 2021:

	March 31, 2022
	Reduction in interest rate		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forbearance		Total
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	8,265	$	1,160	$	8,287	$	3,269	$	20,981
Other commercial and industrial	713		1,863		502		25		3,103
US commercial loans	7,143		—		—		—		7,143
	16,121		3,023		8,789		3,294		31,227
Mortgage	37,810		6,918		34,739		34,067		113,534
Consumer:
Personal loans	1,280		265		1,237		163		2,945
Auto and leasing	46		—		26		69		141
Total loans	$	55,257	$	10,206	$	44,791	$	37,593	$	147,847

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	December 31, 2021
	Reduction in interest rate		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forbearance		Total
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	8,461	$	1,227	$	12,401	$	3,336	$	25,425
Other commercial and industrial	723		1,985		522		28		3,258
US commercial loans	7,156		—		—		—		7,156
	16,340		3,212		12,923		3,364		35,839
Mortgage	37,307		6,796		32,456		34,403		110,962
Consumer:
Personal loans	1,496		287		1,430		201		3,414
Auto and leasing	74		—		28		109		211
Total loans	$	55,217	$	10,295	$	46,837	$	38,077	$	150,426

TDRs disclosed above were not related to Covid-19 modifications. Section 4013 of CARES Act and the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" provided banks an option to elect to not account for certain loan modifications related to Covid-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2019 and at the time of implementation of the modification program, and the borrowers meet other applicable criteria. At March 31, 2022 there were $10.7 million (December 31, 2021 - $28.0 million) of loans deferred from the Covid-19 pandemic that were not classified as a TDR, which consists of VA insured mortgage loans.

At March 31, 2022 and December 31, 2021, TDR mortgage loans include $44.4 million and $40.8 million, respectively, of government guaranteed loans (e.g. FHA/VA).

Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the TDR tables.

Loan modifications that are considered TDR loans completed during the quarters ended March 31, 2022 and 2021 were as follows:

	Quarter Ended March 31, 2022
	Number of contracts	Pre-Modification<br>Outstanding Recorded<br>Investment		Pre-Modification<br>Weighted Average Rate		Pre-Modification<br>Weighted Average Term<br>(in Months)	Post-Modification<br>Outstanding Recorded<br>Investment		Post-Modification<br>Weighted Average Rate		Post-Modification<br>Weighted Average Term<br>(in Months)
	(Dollars in thousands)
Mortgage	36	$	4,700	4.53	%	274	$	4,863	3.47	%	343
Commercial	2	895		5.60	%	52	752		4.37	%	75
Consumer	1	13		18.20	%	84	13		10.95	%	84

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2021
	Number of contracts	Pre-Modification<br>Outstanding Recorded<br>Investment	Pre-Modification<br>Weighted Average Rate		Pre-Modification<br>Weighted Average Term<br>(in Months)	Post-Modification<br>Outstanding Recorded<br>Investment	Post-Modification<br>Weighted Average Rate		Post-Modification<br>Weighted Average Term<br>(in Months)
	(Dollars in thousands)
Mortgage	26	3,557	3.99	%	300	3,580	3.61	%	333
Commercial	2	185	7.21	%	58	204	6.80	%	58
Consumer	2	16	11.76	%	54	17	9.93	%	63
Auto and leasing	5	82	6.81	%	66	82	9.81	%	36

The following table presents troubled-debt restructurings for which there was a payment default during the twelve-month periods ended March 31, 2022 and 2021:

	Twelve Month Period Ended March 31,
	2022			2021
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)
Mortgage	16	$	1,888	13	$	1,507
Consumer	5	$	71	—	$	—
Auto and leasing	1	$	10	10	$	57

As of March 31, 2022 and December 31, 2021, the recorded investment on residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure amounted to $14.9 million and $16.9 million, respectively. OFG commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent. Puerto Rico and the USVI require the foreclosure to be processed through the respective territory’s courts. Foreclosure timelines vary according to local law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediation, bankruptcy, court delays and title issues.

Collateral-dependent Loans

The table below present the amortized cost of collateral-dependent loans held for investment at March 31, 2022 and December 31, 2021, by class of loans.

	March 31, 2022		December 31, 2021
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	21,279	$	10,233

PCD loans, except for single pooled loans, are not included in the table above as their unit of account is the loan pool.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Credit Quality Indicators

OFG categorizes its loans into loan grades based on relevant information about the ability of borrowers to service their debt, such as economic conditions, portfolio risk characteristics, prior loss experience, and the results of periodic credit reviews of individual loans.

OFG uses the following definitions for loan grades:

Pass: Loans classified as “pass” have a well-defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.

Special Mention: Loans classified as “special mention” have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as “doubtful” have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, questionable and improbable.

Loss: Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass loans.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of March 31, 2022 and based on the most recent analysis performed, the risk category of loans subject to risk rating by class of loans is as follows.

	Term Loans<br>Amortized Cost Basis by Origination Year												Revolving<br>Loans<br>Amortized<br>Cost Basis		Total
	2022		2021		2020		2019		2018		Prior
	(In thousands)
Commercial:
Commercial secured by real estate:
Loan grade:
Pass	$	85,540	$	183,488	$	127,605	$	112,985	$	77,970	$	215,510	$	32,923	$	836,021
Special Mention	—		—		968		32,309		4,468		8,980		664		47,389
Substandard	—		8,878		10,391		173		1,146		17,253		3,740		41,581
Doubtful	—		—		—		—		—		20		633		653
Loss	—		—		—		—		—		—		—		—
Total commercial secured by real estate	85,540		192,366		138,964		145,467		83,584		241,763		37,960		925,644
Other commercial and industrial:
Loan grade:
Pass	47,372		245,506		85,959		40,564		59,694		11,917		344,577		835,589
Special Mention	—		231		40		7,748		2,008		3,452		6,288		19,767
Substandard	12		—		348		179		572		100		2,160		3,371
Doubtful	—		—		—		—		—		—		49		49
Loss	—		—		—		—		—		—		—		—
Total other commercial and industrial:	47,384		245,737		86,347		48,491		62,274		15,469		353,074		858,776
US commercial loans:
Loan grade:
Pass	33,300		81,469		60,798		31,619		46,288		—		233,963		487,437
Special Mention	—		—		—		1,527		19,135		—		—		20,662
Substandard	—		—		7,143		—		9,626		—		—		16,769
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total US commercial loans:	33,300		81,469		67,941		33,146		75,049		—		233,963		524,868
Total commercial loans	$	166,224	$	519,572	$	293,252	$	227,104	$	220,907	$	257,232	$	624,997	$	2,309,288

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2021 and based on the most recent analysis performed, the risk category of loans subject to risk rating by class of loans is as follows.

	Term Loans<br>Amortized Cost Basis by Origination Year												Revolving<br>Loans<br>Amortized<br>Cost Basis		Total
	2021		2020		2019		2018		2017		Prior
	(In thousands)
Commercial:
Commercial secured by real estate:
Loan grade:
Pass	$	183,820	$	120,855	$	114,208	$	94,864	$	52,439	$	183,026	$	45,178	$	794,390
Special Mention	654		628		32,578		4,581		4,053		5,102		643		48,239
Substandard	8,415		10,694		58		849		1,357		17,555		1,671		40,599
Doubtful	—		—		—		—		—		22		744		766
Loss	—		—		—		—		—		—		—		—
Total commercial secured by real estate	192,889		132,177		146,844		100,294		57,849		205,705		48,236		883,994
Other commercial and industrial:
Loan grade:
Pass	276,165		93,809		45,976		57,989		6,106		6,004		330,072		816,121
Special Mention	78		23		8,076		2,213		3,525		—		13,642		27,557
Substandard	112		48		155		394		81		28		1,513		2,331
Doubtful	—		—		—		—		—		—		52		52
Loss	—		—		—		—		—		—		—		—
Total other commercial and industrial:	276,355		93,880		54,207		60,596		9,712		6,032		345,279		846,061
US commercial loans:
Loan grade:
Pass	85,394		61,098		41,924		47,179		—		—		171,928		407,523
Special Mention	—		—		1,515		19,095		—		—		—		20,610
Substandard	—		7,156		—		9,651		—		—		—		16,807
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total US commercial loans:	85,394		68,254		43,439		75,925		—		—		171,928		444,940
Total commercial loans	$	554,638	$	294,311	$	244,490	$	236,815	$	67,561	$	211,737	$	565,443	$	2,174,995

At March 31, 2022 and December 31, 2021, the balance of revolving loans converted to term loans was $57.7 million and $37.5 million, respectively.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

OFG considers the performance of the loan portfolio and its impact on the allowance for credit losses. For mortgage and consumer loan classes, OFG also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in mortgage and consumer loans based on payment activity as of March 31, 2022:

	Term Loans<br>Amortized Cost Basis by Origination Year												Revolving<br>Loans<br>Amortized<br>Cost Basis		Revolving Loans<br>Converted to<br>Term Loans<br>Amortized<br>Cost Basis		Total
	2022		2021		2020		2019		2018		Prior
	(In thousands)
Mortgage:
Payment performance:
Performing	$	6,885	$	26,893	$	16,868	$	14,755	$	18,411	$	583,692	$	—	$	—	$	667,504
Nonperforming	—		—		126		341		477		35,829		—		—		36,773
Total mortgage loans:	6,885		26,893		16,994		15,096		18,888		619,521		—		—		704,277
Consumer:
Personal loans:
Payment performance:
Performing	94,228		159,506		47,338		54,905		24,182		14,136		—		—		394,295
Nonperforming	13		235		246		300		128		439		—		—		1,361
Total personal loans	94,241		159,741		47,584		55,205		24,310		14,575		—		—		395,656
Credit lines:
Payment performance:
Performing	—		—		—		—		—		—		13,810		—		13,810
Nonperforming	—		—		—		—		—		—		110		—		110
Total credit lines	—		—		—		—		—		—		13,920		—		13,920
Credit cards:
Payment performance:
Performing	—		—		—		—		—		—		44,586		—		44,586
Nonperforming	—		—		—		—		—		—		559		—		559
Total credit cards	—		—		—		—		—		—		45,145		—		45,145
Overdrafts:
Payment performance:
Performing	—		—		—		—		—		—		238		—		238
Nonperforming	—		—		—		—		—		—		—		—		—
Total overdrafts	—		—		—		—		—		—		238		—		238
Total consumer loans	94,241		159,741		47,584		55,205		24,310		14,575		59,303		—		454,959
Total mortgage and consumer loans	$	101,126	$	186,634	$	64,578	$	70,301	$	43,198	$	634,096	$	59,303	$	—	$	1,159,236

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the amortized cost in mortgage and consumer loans based on payment activity as of December 31, 2021:

	Term Loans<br>Amortized Cost Basis by Origination Year												Revolving<br>Loans<br>Amortized<br>Cost Basis		Revolving Loans<br>Converted to<br>Term Loans<br>Amortized<br>Cost Basis		Total
	2021		2020		2019		2018		2017		Prior
	(In thousands)
Mortgage:
Payment performance:
Performing	$	18,486	$	16,585	$	15,461	$	19,261	$	24,872	$	584,792	$	—	$	—	$	679,457
Nonperforming	—		126		129		510		1,830		36,796		—		—		39,391
Total mortgage loans:	18,486		16,711		15,590		19,771		26,702		621,588		—		—		718,848
Consumer:
Personal loans:
Payment performance:
Performing	175,273		55,960		65,425		29,808		12,287		6,661		—		—		345,414
Nonperforming	296		239		411		143		20		336		—		—		1,445
Total personal loans	175,569		56,199		65,836		29,951		12,307		6,997		—		—		346,859
Credit lines:
Payment performance:
Performing	—		—		—		—		—		—		14,549		—		14,549
Nonperforming	—		—		—		—		—		—		226		—		226
Total credit lines	—		—		—		—		—		—		14,775		—		14,775
Credit cards:
Payment performance:
Performing	—		—		—		—		—		—		46,163		—		46,163
Nonperforming	—		—		—		—		—		—		632		—		632
Total credit cards	—		—		—		—		—		—		46,795		—		46,795
Overdrafts:
Payment performance:
Performing	—		—		—		—		—		—		330		—		330
Nonperforming	—		—		—		—		—		—		—		—		—
Total overdrafts	—		—		—		—		—		—		330		—		330
Total consumer loans	175,569		56,199		65,836		29,951		12,307		6,997		61,900		—		408,759
Total mortgage and consumer loans	$	194,055	$	72,910	$	81,426	$	49,722	$	39,009	$	628,585	$	61,900	$	—	$	1,127,607

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

OFG evaluates credit quality for auto loans and leases based on FICO score. The following table presents the amortized cost in auto loans and leases based on their most recent FICO score as of March 31, 2022:

	Term Loans<br>Amortized Cost Basis by Origination Year												Total
	2022		2021		2020		2019		2018		Prior
	(In thousands)
Auto and leasing:
FICO score:
1-660	33,276		165,264		85,758		74,524		59,447		52,034		470,303
661-699	33,282		134,368		59,373		42,517		29,540		23,202		322,282
700+	70,521		248,563		170,553		169,596		120,474		85,393		865,100
No FICO	7,383		23,139		12,669		15,432		9,133		7,418		75,174
Total auto and leasing:	$	144,462	$	571,334	$	328,353	$	302,069	$	218,594	$	168,047	$	1,732,859

The following table presents the amortized cost in auto loans and leases based on their most recent FICO score as of December 31, 2021:

	Term Loans<br>Amortized Cost Basis by Origination Year												Total
	2021		2020		2019		2018		2017		Prior
	(In thousands)
Auto and leasing:
FICO score:
1-660	161,534		90,402		80,745		65,681		38,001		23,171		459,534
661-699	134,507		68,422		48,173		33,854		16,761		10,534		312,251
700+	245,148		180,737		184,307		133,098		63,229		38,474		844,993
No FICO	26,759		13,580		17,062		10,119		5,515		3,216		76,251
Total auto and leasing:	$	567,948	$	353,141	$	330,287	$	242,752	$	123,506	$	75,395	$	1,693,029

Upon adoption of CECL, OFG elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the tables above.

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

On January 1, 2020, OFG adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in OFG’s relevant financial assets.

The allowance for credit losses (“ACL”) is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. Also included in the ACL are qualitative reserves to cover losses that are expected but, in OFG’s assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, OFG incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends.

At March 31, 2022, OFG used an economic probability weighted scenario approach which consist of the baseline and moderate recession scenarios, giving more weight to the baseline scenario. In addition, the ACL at March 31, 2022 continues to include qualitative reserves for certain segments that OFG views as higher risk that may not be fully recognized through its quantitative models such as commercial loans concentrated in certain industries and consumer retail portfolios. There are still many unknowns including the duration of the impact of Covid-19 on the economy and the results of the government fiscal and monetary actions resulting from the effect of inflation. Also, geopolitical tension resulted from the military conflict between Ukraine and Russia will put more pressure on inflation due to disruption to oil, natural gas and other commodity markets.

As of March 31, 2022, the allowance for credit losses increased by $1.1 million when compared to December 31, 2021. The provision for credit losses for the quarter ended March 31, 2022 includes a provision of $4.0 million related to growth in loan balances, an increase of $4.2 million related to a commercial loan previously placed in non-accrual status, and a decrease of $5.7 million associated with qualitative adjustment due to improvement in the performance of the portfolios and in the labor market of the island. The provision for credit losses for the quarter ended March 31, 2021 included a $3.7 million release of Covid-19-related loan reserves and a $3.5 million provision for a commercial loan in workout prior to the pandemic.

The following tables present the activity in OFG’s allowance for credit losses by segment for the quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31, 2022
	Commercial		Mortgage		Consumer		Auto and Leasing		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	32,262	$	15,299	$	19,141	$	65,363	$	132,065
Provision for (recapture of) credit losses	5,187		(2,418)		3,963		1,831		8,563
Charge-offs	(544)		(3)		(2,659)		(7,890)		(11,096)
Recoveries	192		2,074		655		4,891		7,812
Balance at end of period	$	37,097	$	14,952	$	21,100	$	64,195	$	137,344
PCD:
Balance at beginning of period	$	4,508	$	19,018	$	34	$	312	$	23,872
(Recapture of) provision for credit losses	(3,875)		(2,848)		13		(138)		(6,848)
Charge-offs	(34)		(1,134)		(39)		(114)		(1,321)
Recoveries	3,023		845		23		137		4,028
Balance at end of period	$	3,622	$	15,881	$	31	$	197	$	19,731
Total allowance for credit losses at end of period	$	40,719	$	30,833	$	21,131	$	64,392	$	157,075

Total recoveries for the first quarter of 2022 includes a $2.8 million recovery from a Puerto Rico government public corporation acquired PCD commercial loan repaid during the quarter and $1.1 million recoveries associated with the final

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OFG BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

settlement of the past due mortgage loans transferred to held for sale during the fourth quarter of 2021 and subsequently sold during the first quarter of 2022.

	Quarter Ended March 31, 2021
	Commercial		Mortgage		Consumer		Auto and Leasing		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	45,779	$	19,687	$	25,253	$	70,296	$	161,015
Provision for (recapture of) credit losses	1,542		(2,480)		(158)		4,039		2,943
Charge-offs	(68)		(787)		(4,469)		(9,083)		(14,407)
Recoveries	430		615		565		5,817		7,427
Balance at end of period	$	47,683	$	17,035	$	21,191	$	71,069	$	156,978
PCD:
Balance at beginning of period	$	16,405	$	26,389	$	57	$	943	$	43,794
(Recapture of) provision for credit losses	(2,492)		5,994		(4)		(172)		3,326
Charge-offs	(43)		(2,590)		(22)		(456)		(3,111)
Recoveries	436		146		21		383		986
Balance at end of period	$	14,306	$	29,939	$	52	$	698	$	44,995
Total allowance for credit losses at end of period	$	61,989	$	46,974	$	21,243	$	71,767	$	201,973

NOTE 6 — FORECLOSED REAL ESTATE

The following tables present the activity related to foreclosed real estate for the quarters ended March 31, 2022 and 2021:

	Quarter ended March 31,
	2022		2021
	(In thousands)
Balance at beginning of period	$	15,039	$	11,596
Additions	3,180		6,637
Sales	(3,807)		(2,423)
Decline in value	(195)		(89)
Other adjustments	1,080		(123)
Balance at end of period	$	15,297	$	15,598

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NOTE 7 - SERVICING ASSETS

At March 31, 2022, the fair value of mortgage servicing rights was $49.4 million ($49.0 million — December 31, 2021).

The following table presents the changes in servicing rights measured using the fair value method for the quarters ended March 31, 2022 and 2021:

	Quarter ended March 31,
	2022		2021
Fair value at beginning of period	$	48,973	$	47,295
Servicing from mortgage securitization or asset transfers	1,119		1,420
Changes due to payments on loans	(1,499)		(1,507)
Changes in fair value due to changes in valuation model inputs or assumptions	853		703
Fair value at end of period	$	49,446	$	47,911

The following table presents key economic assumption ranges used in measuring the mortgage-related servicing asset fair value for the quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31,
	2022	2021
Constant prepayment rate	3.88% - 24.30%	4.50% - 40.50%
Discount rate	10.00% - 15.50%	10.00% - 15.50%

The sensitivity of the current fair value of servicing assets to immediate 10 percent and 20 percent adverse changes in the above key assumptions were as follows:

	March 31, 2022
	(In thousands)
Mortgage-related servicing asset
Carrying value of mortgage servicing asset	$	49,446
Constant prepayment rate
Decrease in fair value due to 10% adverse change	$	(924)
Decrease in fair value due to 20% adverse change	$	(1,819)
Discount rate
Decrease in fair value due to 10% adverse change	$	(2,276)
Decrease in fair value due to 20% adverse change	$	(4,373)

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.

Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Servicing fee income is based on a contractual percentage of the outstanding principal balance and is recorded as income when earned. Servicing fees on mortgage loans for the quarters ended March 31, 2022 and 2021 totaled $5.0 million and $5.2 million, respectively.

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NOTE 8 — DERIVATIVES

OFG’s overall interest rate risk-management strategy incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. Derivative instruments that are used as part of OFG’s interest rate risk-management strategy include interest rate swaps and caps.

As of March 31, 2022 and December 31, 2021, the notional amount of derivative contracts outstanding was $28.0 million and $28.5 million respectively. The gross fair value of derivative asset was $6 thousand and $1 thousand, respectively, and the gross fair value of derivatives liabilities were $191 thousand and $804 thousand, respectively. The impact of master netting agreements was not material. As of March 31, 2022 and December 31, 2021, derivative and hedging activities were not material.

NOTE 9 — GOODWILL AND OTHER INTANGIBLE ASSETS

As of March 31, 2022 and December 31, 2021, OFG had $86.1 million of goodwill allocated as follows: $84.1 million to the banking segment and $2.0 million to the wealth management segment (refer to Note 23 – Business Segments for the definition of OFG’s reportable business segments). There were no changes in the carrying amount of goodwill for the quarters ended March 31, 2022 and 2021.

Relevant events and circumstances for evaluating whether it is more likely than not that the fair value of a reporting segment is less than its carrying amount may include macroeconomic conditions (such as deterioration of the Puerto Rico economy or the liquidity for Puerto Rico securities or loans secured by assets in Puerto Rico), adverse changes in legal factors or in the business climate, adverse actions by a regulator, unanticipated competition, the loss of key employees, natural disasters, or similar events.

OFG performed its annual impairment review of goodwill during the fourth quarter of 2021 using October 31, 2021 as the annual evaluation date and concluded that there was no impairment at December 31, 2021. There were no additional events that caused OFG to perform interim testing during the quarter ended March 31, 2022.

The following table reflects the components of other intangible assets subject to amortization at March 31, 2022 and 2021:

	Gross<br>Carrying<br>Amount		Accumulated<br>Amortization		Net<br>Carrying<br>Value
	(In thousands)
March 31, 2022
Core deposit intangibles	$	51,402	$	25,410	$	25,992
Customer relationship intangibles	17,753		9,869		7,884
Other intangibles	567		496		71
Total other intangible assets	$	69,722	$	35,775	$	33,947
December 31, 2021
Core deposit intangibles	$	51,402	$	23,772	$	27,630
Customer relationship intangibles	17,753		9,385		8,368
Other intangibles	567		472		95
Total other intangible assets	$	69,722	$	33,629	$	36,093

In connection with previous acquisitions, OFG recorded a core deposit intangible representing the value of checking and savings deposits acquired. In addition, OFG recorded a customer relationship intangible representing the value of customer relationships acquired with the acquisitions of a securities broker-dealer and insurance agencies.

Other intangible assets have a definite useful life. Amortization of other intangible assets for the quarters ended March 31, 2022 and 2021 was $2.1 million and $2.5 million, respectively.

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The following table presents the estimated amortization of other intangible assets for each of the following periods.

Year Ending December 31,	(In thousands)
2022	$	8,501
2023	6,898
2024	5,913
2025	4,927
2026	3,942
Thereafter	5,912

NOTE 10 — ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS

Accrued interest receivable at March 31, 2022 and December 31, 2021 consists of the following:

	March 31,		December 31,
	2022		2021
	(In thousands)
Loans	$	53,427	$	54,794
Investments	2,670		1,766
	$	56,097	$	56,560

Accrued interest receivable on loans that participated in the Covid-19 deferral programs amounted to $23.6 million at March 31, 2022 (December 31, 2021 - $23.9 million), of which $21.8 million (December 31, 2021 - $21.5 million) corresponds to loans in current status. OFG estimates expected credit losses on accrued interest receivable for loans that participated in the Covid-19 deferral programs. An allowance has been established for loans with delinquency status in 30 to 89 days past due and is calculated by applying the corresponding loan projected loss factors to the accrued interest receivable balance. At March 31, 2022 and December 31, 2021, the allowance for credit losses for accrued interest receivable for loans that participated in the Covid-19 deferral programs amounted to $146 thousand and $161 thousand, respectively, and is included in accrued interest receivable in the statement of financial condition.

Other assets at March 31, 2022 and December 31, 2021 consist of the following:

	March 31,		December 31,
	2022		2021
	(In thousands)
Prepaid expenses	$	56,931	$	61,061
Other repossessed assets	2,625		1,945
Investment in Statutory Trust	—		1,083
Accounts receivable and other assets	82,686		88,756
	$	142,242	$	152,845

Prepaid expenses amounting to $56.9 million at March 31, 2022, include prepaid municipal, property and income taxes aggregating to $51.5 million. At December 31, 2021 prepaid expenses amounted to $61.1 million, including prepaid municipal, property and income taxes aggregating to $54.6 million.

Other repossessed assets totaled $2.6 million and $1.9 million at March 31, 2022 and December 31, 2021, respectively, that consist mainly of repossessed automobiles, which are recorded at their net realizable value.

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NOTE 11— DEPOSITS AND RELATED INTEREST

Total deposits, including related accrued interest payable, as of March 31, 2022 and December 31, 2021 consist of the following:

	March 31,		December 31,
	2022		2021
	(In thousands)
Non-interest bearing demand deposits	$	2,667,508	$	2,501,644
Interest-bearing savings and demand deposits	5,132,245		4,880,476
Retail certificates of deposit	966,567		1,007,577
Institutional certificates of deposit	200,536		202,050
Total core deposits	8,966,856		8,591,747
Brokered deposits	11,366		11,371
Total deposits	$	8,978,222	$	8,603,118

At March 31, 2022 and December 31, 2021, the aggregate amount of uninsured deposits was $3.626 billion and $3.270 billion, respectively.

The weighted average interest rate of OFG’s deposits was 0.35% and 0.49%, respectively, at March 31, 2022 and December 31, 2021. Interest expense for the quarters ended March 31, 2022 and 2021 was as follows:

	Quarter Ended March 31,
	2022		2021
Demand and savings deposits	$	4,976	$	6,371
Certificates of deposit	2,065		5,653
	$	7,041	$	12,024

At March 31, 2022 and December 31, 2021, time deposits in denominations of $250 thousand or higher, excluding accrued interest and unamortized discounts, amounted to $340.3 million and $360.8 million, respectively.

At March 31, 2022 and December 31, 2021, total public fund deposits from various Puerto Rico government municipalities, agencies and corporations amounted to $248.3 million and $183.8 million, respectively. These public funds were collateralized with commercial loans and securities amounting to $284.9 million and $228.9 million at March 31, 2022 and December 31, 2021, respectively.

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Excluding accrued interest of approximately $578 thousand and $736 thousand, the scheduled maturities of certificates of deposit at March 31, 2022 and December 31, 2021 are as follows:

March 31, 2022
	Period-end amount		Uninsured amount
	(In thousands)
Within one year:
Three months or less	$	245,840	$	19,710
Over 3 months through 6 months	149,348		28,222
Over 6 months through 1 year	257,661		47,713
	652,849		95,645
Over 1 through 2 years	278,011		40,392
Over 2 through 3 years	118,924		18,440
Over 3 through 4 years	75,209		24,046
Over 4 through 5 years	51,546		5,805
Over 5 years	1,352		—
	$	1,177,891	$	184,328
December 31, 2021
	Period-end amount		Uninsured amount
	(In thousands)
Within one year:
Three months or less	$	252,513	25,003
Over 3 months through 6 months	147,400		12,113
Over 6 months through 1 year	239,830		45,280
	639,743		82,396
Over 1 through 2 years	328,177		60,108
Over 2 through 3 years	114,403		18,578
Over 3 through 4 years	77,604		22,536
Over 4 through 5 years	58,918		8505
Over 5 years	1,417		—
	$	1,220,262	$	192,123

The table of scheduled maturities of certificates of deposits above includes brokered-deposits and individual retirement accounts.

The aggregate amount of overdrafts in demand deposit accounts that were reclassified to loans amounted to $392 thousand and $491 thousand as of March 31, 2022 and December 31, 2021, respectively.

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NOTE 12— BORROWINGS AND RELATED INTEREST

Advances from the Federal Home Loan Bank of New York

Advances are received from the FHLB-NY under an agreement whereby OFG is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At March 31, 2022 and December 31, 2021, these advances were secured by mortgage and commercial loans amounting to $910.7 million and $949.0 million, respectively. Also, at March 31, 2022 and December 31, 2021, OFG had an additional borrowing capacity with the FHLB-NY of $664.3 million and $697.3 million, respectively. At March 31, 2022 and December 31, 2021, the weighted average remaining maturity of FHLB’s advances was 1 and 3 days, respectively. The original term of the outstanding advance at March 31, 2022 is 1 month.

The following table shows a summary of the advances and their terms, excluding accrued interest in the amount of $13 thousand and $8 thousand at March 31, 2022 and December 31, 2021, respectively:

	March 31,		December 31,
	2022		2021
	(In thousands)
Short-term fixed-rate advances from FHLB, with a weighted average interest rate of 0.33% (December 31, 2021 - 0.35%)	$	28,022	$	28,480

Advances from FHLB mature as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Under 90 days	$	28,022	$	28,480

Subordinated Capital Notes

In August 2003, the Statutory Trust II, a special purpose entity of OFG, was formed for the purpose of issuing trust redeemable preferred securities. In September 2003, $35.0 million of trust redeemable preferred securities were issued by the Statutory Trust II as part of a pooled underwriting transaction.

The proceeds from this issuance were used by the Statutory Trust II to purchase a like amount of a floating rate junior subordinated deferrable interest debenture issued by OFG with a par value of $36.1 million.

During the quarter ended March 31, 2022, OFG redeemed of all outstanding $36.1 million subordinated capital notes before maturity, and as a result, it wrote off $405 thousand in unamortized issuance costs, included as interest expense in the consolidated statements of operations. OFG also recorded a gain on early debt extinguishment of $42 thousand included in other non-interest income in the consolidated statements of operations. Prior to redemption, such subordinated capital notes carried an interest rate of 3.23% based on 3-month LIBOR plus 295 basis points and were schedule to mature on September 17, 2033.

At December 31, 2021, the $35.0 million trust redeemable preferred securities were treated as Tier 1 capital for regulatory purposes. Under the Dodd-Frank Act and the Basel III capital rules issued by the federal banking regulatory agencies in July 2013, bank holding companies are prohibited from including in their tier 1 capital hybrid debt and equity securities, including trust preferred securities, issued on or after May 19, 2010. Any such instruments issued before May 19, 2010 by a bank holding company, such as OFG, with total consolidated assets of less than $15 billion as of December 31, 2009, could continue to be included as tier 1 capital.

NOTE 13 — INCOME TAXES

Oriental is subject to the dispositions of the PR Code. For 2022, the PR Code imposed a maximum statutory corporate tax rate of 37.5%. OFG has operations in the U.S. through its wholly owned subsidiary OPC, a retirement plan administration based in Florida. In October 2017, OFG expanded its operations in the United States through the Bank’s wholly owned

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subsidiary, OFG USA. In March 2019, OFG incorporated in Delaware OFG Ventures, a limited liability company, which will hold new investments; and, on December 31, 2019, OFG established new branches in USVI acquired as a result of the Scotiabank Acquisition. The United States subsidiaries are subject to federal income taxes at the corporate level, while the USVI branches are subject to the federal income taxes under a mirror system and a 10% surtax included in the maximum tax rate. OPC is subject to Florida state taxes, OFG USA is subject to North Carolina state taxes, and current investments in OFG Ventures are subject to state taxes in Missouri. In addition, during 2021, OFG incorporated in Grand Cayman, as a foreign wholly owned subsidiary, OFG Reinsurance. OFG Reinsurance is tax exempt in Grand Cayman.

As of March 31, 2022 and December 31, 2021, OFG’s net deferred tax asset, net of a valuation allowance of $10.1 million and $9.6 million, respectively, amounted to $87.6 million and $99.1 million, respectively. The increase in valuation allowance of $420 thousand was mainly related to OFG holding company's operations. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. Based upon the assessment of positive and negative evidence, the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax asset are deductible, and provisions of certain closing agreements, management believes it is more likely than not that OFG will realize the benefits of these deductible differences, net of the existing valuation allowances, at March 31, 2022. The amount of the deferred tax asset that is considered realizable could be reduced in the near term if there are changes in estimates of future taxable income.

OFG maintained an effective tax rate lower than the statutory rate for the quarters ended March 31, 2022 and 2021 of 30.60% and 31.90%, respectively; the decrease is mainly related to discrete tax windfall on stock options recognized during the quarter ended March 31, 2022. The expected effective tax rate for the year 2022 is 32.40%.

OFG classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At March 31, 2022, the amount of unrecognized tax benefits was $815 thousand (December 31, 2021 - $798 thousand).

Income tax expense for the quarters ended March 31, 2022 and 2021 was $16.6 million and $14.2 million, respectively.

NOTE 14 — REGULATORY CAPITAL REQUIREMENTS

Regulatory Capital Requirements

OFG (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on OFG’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, OFG and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

As of March 31, 2022 and December 31, 2021, OFG and the Bank met all capital adequacy requirements to which they are subject. As of March 31, 2022 and December 31, 2021, OFG and the Bank are “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the tables presented below.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

OFG’s and the Bank’s actual capital amounts and ratios as of March 31, 2022 and December 31, 2021 are as follows:

	Actual				Minimum Capital<br>Requirement (including <br>capital conservation buffer)				Minimum to be Well<br>Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
OFG Bancorp Ratios
As of March 31, 2022
Total capital to risk-weighted assets	$	1,045,437	14.49	%	$	757,543	10.50	%	$	721,469	10.00	%
Tier 1 capital to risk-weighted assets	$	955,221	13.24	%	$	613,249	8.50	%	$	577,175	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	955,221	13.24	%	$	505,028	7.00	%	$	468,955	6.50	%
Tier 1 capital to average total assets	$	955,221	9.54	%	$	400,333	4.00	%	$	500,416	5.00	%
As of December 31, 2021
Total capital to risk-weighted assets	$	1,086,897	15.52	%	$	735,512	10.50	%	$	700,488	10.00	%
Tier 1 capital to risk-weighted assets	$	999,284	14.27	%	$	595,414	8.50	%	$	560,390	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	964,284	13.77	%	$	490,341	7.00	%	$	455,317	6.50	%
Tier 1 capital to average total assets	$	999,284	9.69	%	$	412,359	4.00	%	$	515,449	5.00	%			Actual				Minimum Capital<br>Requirement (including<br>capital conservation buffer)				Minimum to be Well<br>Capitalized
---	---	---	---	---	---	---	---	---	---	---	---	---
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank Ratios
As of March 31, 2022
Total capital to risk-weighted assets	$	1,000,591	13.93	%	$	754,127	10.50	%	$	718,216	10.00	%
Tier 1 capital to risk-weighted assets	$	910,777	12.68	%	$	610,484	8.50	%	$	574,573	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	910,777	12.68	%	$	502,751	7.00	%	$	466,840	6.50	%
Tier 1 capital to average total assets	$	910,777	9.17	%	$	397,348	4.00	%	$	496,685	5.00	%
As of December 31, 2021
Total capital to risk-weighted assets	$	995,549	14.34	%	$	728,867	10.50	%	$	694,159	10.00	%
Tier 1 capital to risk-weighted assets	$	908,717	13.09	%	$	590,035	8.50	%	$	555,327	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	908,717	13.09	%	$	485,911	7.00	%	$	451,203	6.50	%
Tier 1 capital to average total assets	$	908,717	8.87	%	$	409,855	4.00	%	$	512,319	5.00	%

NOTE 15 – STOCKHOLDERS’ EQUITY

Preferred Stock and Common Stock

During the year ended December 31, 2021, OFG redeemed all of its outstanding Series A, Series B and Series D preferred stock at a redemption price of $25.00 per share. As a result of such redemptions, OFG no longer has any outstanding preferred stock. At both March 31, 2022 and December 31, 2021, common stock amounted to $59.9 million.

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Additional Paid-in Capital

Additional paid-in capital represents contributed capital in excess of par value of common stock, net of the costs of issuance. At both March 31, 2022 and December 31, 2021, accumulated common stock issuance costs charged against additional paid-in capital amounted to $13.6 million.

Legal Surplus

The Puerto Rico Banking Act requires that a minimum of 10% of the Bank’s net income for the year be transferred to a reserve fund until such fund (legal surplus) equals the total paid in capital on common and preferred stock. At March 31, 2022 and December 31, 2021, the Bank’s legal surplus amounted to $121.4 million and $117.7 million, respectively. The amount transferred to the legal surplus account is not available for the payment of dividends to shareholders.

Treasury Stock

In January 2022, OFG announced the approval by the Board of Directors of a stock repurchase program to purchase $100 million of its outstanding shares of common stock. The shares of common stock repurchased are held by OFG as treasury shares. During the quarter ended March 31, 2022, OFG repurchased 1,219,132 shares for a total of $33.5 million at an average price of $27.46 per share. OFG did not purchase any shares of its common stock during the quarter ended March 31, 2022, other than through its publicly announced stock repurchase programs. During the quarter ended March 31, 2021, OFG did not repurchase any shares of its common stock.

At March 31, 2022 the number of shares that may yet be purchased under the $100 million program is estimated at 2,497,051 and was calculated by dividing the remaining balance of $66.5 million by $26.64 (closing price of OFG’s common stock at March 31, 2022).

The activity in connection with common shares held in treasury by OFG for the quarters ended March 31, 2022 and 2021 is set forth below:

	Quarter Ended March 31,
	2022			2021
	Shares	Dollar<br>Amount		Shares	Dollar<br>Amount
	(In thousands, except shares data)
Beginning of period	10,248,882	$	150,572	8,498,163	$	102,949
Common shares used upon lapse of restricted stock units and options	(255,893)	(3,334)		(192,174)	(1,955)
Common shares repurchased as part of the stock repurchase programs	1,219,132	33,479		—	—
End of period	11,212,121	$	180,717	8,305,989	$	100,994

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NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

Accumulated other comprehensive (loss) income, net of income taxes, as of March 31, 2022 and December 31, 2021 consisted of:

	March 31,		December 31,
	2022		2021
	(In thousands)
Unrealized (loss) gain on securities available-for-sale which are not<br>other-than-temporarily impaired	$	(23,460)	$	7,292
Income tax effect of unrealized loss (gain) on securities available-for-sale	2,938		(1,629)
Net unrealized (loss) gain on securities available-for-sale which are not<br>other-than-temporarily impaired	(20,522)		5,663
Unrealized loss on cash flow hedges	(185)		(804)
Income tax effect of unrealized loss on cash flow hedges	69		301
Net unrealized loss on cash flow hedges	(116)		(503)
Accumulated other comprehensive (loss) income, net of income taxes	$	(20,638)	$	5,160

The following table presents changes in accumulated other comprehensive (loss) income by component, net of taxes, for quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31, 2022
	Net unrealized<br>loss on<br>securities<br>available-for-sale		Net unrealized<br>loss on<br>cash flow<br>hedges		Accumulated<br>other<br>comprehensive<br>(loss) income
	(In thousands)
Beginning balance	$	5,663	$	(503)	$	5,160
Other comprehensive (loss) income before reclassifications	(26,187)		194		(25,993)
Amounts reclassified out of accumulated other comprehensive income	2		193		195
Other comprehensive (loss) income	(26,185)		387		(25,798)
Ending balance	$	(20,522)	$	(116)	$	(20,638)			Quarter Ended March 31, 2021
---	---	---	---	---	---	---
	Net unrealized<br>gains on<br>securities<br>available-for-sale		Net unrealized<br>loss on<br>cash flow<br>hedges		Accumulated<br>other<br>comprehensive<br>(loss) income
	(In thousands)
Beginning balance	$	12,092	$	(1,070)	$	11,022
Other comprehensive (loss) income before reclassifications	(4,948)		(304)		(5,252)
Amounts reclassified out of accumulated other comprehensive income	1		459		460
Other comprehensive (loss) income	(4,947)		155		(4,792)
Ending balance	$	7,145	$	(915)	$	6,230

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents reclassifications out of accumulated other comprehensive (loss) income for the quarters ended March 31, 2022 and 2021:

	Amount reclassified out of accumulated other comprehensive income Quarter Ended March 31,				Affected Line Item in <br>Consolidated Statement of <br>Operations
	2022		2021
	(In thousands)
Cash flow hedges:
Interest-rate contracts	$	193	$	459		Net interest expense
Available-for-sale securities:
Tax effect from changes in tax rates	2		1			Income tax expense
	$	195	$	460

NOTE 17 – EARNINGS PER COMMON SHARE

The calculation of earnings per common share for the quarters ended March 31, 2022 and 2021 is as follows:

	Quarter Ended March 31,
	2022		2021
	(In thousands, except per share data)
Net income	$	37,521	$	30,373
Less: Dividends on preferred stock
Non-convertible preferred stock (Series A, B, and D)	—		(1,255)
Income available to common shareholders	$	37,521	$	29,118
Average common shares outstanding	48,968		51,397
Effect of dilutive securities:
Average potential common shares-options	516		355
Total weighted average common shares outstanding and equivalents	49,484		51,752
Earnings per common share - basic	$	0.77	$	0.57
Earnings per common share - diluted	$	0.76	$	0.56

For the quarters ended March 31, 2022 and 2021, OFG did not have weighted-average stock options with an anti-dilutive effect on earnings per share.

During the quarter ended March 31, 2022, OFG increased its quarterly common stock cash dividend to $0.15 per share.

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NOTE 18 – GUARANTEES

At March 31, 2022 and December 31, 2021, the notional amount of the obligations undertaken in issuing the guarantees under standby letters of credit represented a liability of $29.4 million and $25.2 million, respectively.

OFG has a liability for residential mortgage loans sold subject to credit recourse pursuant to GNMA’s and FNMA’s residential mortgage loan sales and securitization programs. At March 31, 2022 and December 31, 2021, the unpaid principal balance of residential mortgage loans sold subject to credit recourse was $118.7 million and $121.8 million, respectively.

The following table shows the changes in OFG’s liability for estimated losses from these credit recourse agreements, included in the consolidated statements of financial condition during the quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Balance at beginning of period	$	294	$	218
Net recoveries (charge-offs/terminations)	(100)		(23)
Balance at end of period	$	194	$	195

The estimated losses to be absorbed under the credit recourse arrangements were recorded as a liability when the credit recourse was assumed and are updated on a quarterly basis. The expected loss, which represents the amount expected to be lost on a given loan, considers the probability of default and loss severity. The probability of default represents the probability that a loan in good standing would become 120 days delinquent, in which case OFG is obligated to repurchase the loan.

If a borrower defaults, pursuant to the credit recourse provided, OFG is required to repurchase the loan or reimburse the third-party investor for the incurred loss. The maximum potential amount of future payments that OFG would be required to make under the recourse arrangements is equivalent to the total outstanding balance of the residential mortgage loans serviced with recourse and interest, if applicable. During the quarters ended March 31, 2022 and 2021, OFG repurchased $718 thousand and $980 thousand, respectively, in mortgage loans subject to credit resource. If a borrower defaults, OFG has rights to the underlying collateral securing the mortgage loan. OFG suffers losses on these mortgage loans when the proceeds from a foreclosure sale of the collateral property are less than the outstanding principal balance of the loan, any uncollected interest advanced, and the costs of holding and disposing the related property. At March 31, 2022, OFG’s liability for estimated credit losses related to loans sold with credit recourse amounted to $194 thousand (December 31, 2021– $294 thousand).

When OFG sells or securitizes mortgage loans, it generally makes customary representations and warranties regarding the characteristics of the loans sold. OFG’s mortgage operations division groups conforming mortgage loans into pools which are exchanged for FNMA and GNMA mortgage-backed securities, which are generally sold to private investors, or are sold directly to FNMA or other private investors for cash. As required under such mortgage-backed securities programs, quality review procedures are performed by OFG to ensure that asset guideline qualifications are met. To the extent the loans do not meet specified characteristics, OFG may be required to repurchase such loans or indemnify for losses and bear any subsequent loss related to the loans. During the quarter ended March 31, 2022, OFG repurchased $7.8 million (March 31, 2021 – $12.6 million) of unpaid principal balance in mortgage loans, excluding mortgage loans subject to credit recourse provision referred above. At March 31, 2022 and December 31, 2021, OFG had a $2.9 million and a $3.4 million, respectively, liability for the estimated credit losses related to these loans.

During the quarter ended March 31, 2022 and 2021, OFG recognized $100 thousand and $22 thousand in gains, net of reserves, respectively, from the repurchase of residential mortgage loans sold subject to credit recourse, and $2 thousand in gains and $1.3 million in losses, respectively, from the repurchase of residential mortgage loans as a result of breaches of customary representations and warranties.

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At March 31, 2022, OFG serviced $5.8 billion (December 31, 2021 - $5.7 billion) in mortgage loans for third parties. Servicing agreements relating to the mortgage-backed securities programs of FNMA and GNMA, and to mortgage loans sold or serviced to certain other investors, including the FHLMC, require OFG to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. OFG generally recovers funds advanced pursuant to these arrangements from the mortgage owner, from liquidation proceeds when the mortgage loan is foreclosed or, in the case of FHA/VA loans, under the applicable FHA and VA insurance and guarantees programs. However, in the meantime, OFG must absorb the cost of the funds it advances during the time the advance is outstanding. OFG must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and OFG would not receive any future servicing income with respect to that loan. At March 31, 2022, the outstanding balance of funds advanced by OFG under such mortgage loan servicing agreements was approximately $14.4 million (December 31, 2021 - $12.9 million). To the extent the mortgage loans underlying OFG’s servicing portfolio experience increased delinquencies, OFG would be required to dedicate additional cash resources to comply with its obligation to advance funds as well as incur additional administrative costs related to increases in collection efforts.

NOTE 19— COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, OFG becomes a party to credit-related financial instruments with off-balance-sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby and commercial letters of credit, and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated statements of financial condition. The contract or notional amount of those instruments reflects the extent of OFG’s involvement in particular types of financial instruments.

OFG’s exposure to credit losses in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit, including commitments under credit card arrangements, and commercial letters of credit is represented by the contractual notional amounts of those instruments, which do not necessarily represent the amounts potentially subject to risk. In addition, the measurement of the risks associated with these instruments is meaningful only when all related and offsetting transactions are identified. OFG uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Credit-related financial instruments at March 31, 2022 and December 31, 2021 were as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Commitments to extend credit	$	1,349,603	$	1,365,273
Commercial letters of credit	26,068		48,196

Commitments to extend credit represent agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. OFG evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by OFG upon the extension of credit, is based on management’s credit evaluation of the counterparty.

At March 31, 2022 and December 31, 2021, commitments to extend credit consisted mainly of undisbursed available amounts on commercial lines of credit, construction loans, and revolving credit card arrangements. Since many of the unused commitments are expected to expire unused or be only partially used, the total amount of these unused commitments does not necessarily represent future cash requirements.

Commercial letters of credit are issued or confirmed to guarantee payment of customers’ payables or receivables in short-term international trade transactions. Generally, drafts will be drawn when the underlying transaction is consummated as intended. However, the short-term nature of this instrument serves to mitigate the risk associated with these contracts.

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The summary of instruments that are considered financial guarantees in accordance with the authoritative guidance related to guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others, at March 31, 2022 and December 31, 2021, is as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Standby letters of credit and financial guarantees	$	29,395	$	25,203
Loans sold with recourse	118,742		121,778

Standby letters of credit and financial guarantees are written conditional commitments issued by OFG to guarantee the payment and/or performance of a customer to a third party (“beneficiary”). If the customer fails to comply with the agreement, the beneficiary may draw on the standby letter of credit or financial guarantee as a remedy. The amount of credit risk involved in issuing letters of credit in the event of non-performance is the face amount of the letter of credit or financial guarantee. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The amount of collateral obtained, if it is deemed necessary by OFG upon extension of credit, is based on management’s credit evaluation of the customer.

At March 31, 2022 and December 31, 2021, the allowance for credit losses for off-balance sheet credit exposures corresponding to commitments to extend credit and standby letters of credit amounted to $857 thousand and $1.0 million, respectively, and is included in other liabilities in the statement of financial condition.

At March 31, 2022 and December 31, 2021, OFG maintained other non-credit commitments amounting to $23.0 million and $8.9 million, respectively, primarily for the acquisition of equity securities. 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. 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 March 31, 2022 and December 31, 2021, OFG had commitments for capital expenditures in technology amounting to $13.9 million and $15.4 million, respectively.

Contingencies

OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. In the ordinary course of business, OFG and its subsidiaries are also subject to governmental and regulatory examinations. Certain subsidiaries of OFG, including the Bank (and its subsidiary, OIB), Oriental Financial Services, and Oriental Insurance, are subject to regulation by various U.S., Puerto Rico and other regulators.

OFG seeks to resolve all arbitration, litigation and regulatory matters in the manner management believes is in the best interests of OFG and its shareholders, and contests allegations of liability or wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter.

In accordance with applicable accounting guidance, OFG establishes an accrued liability when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. As a matter develops, OFG, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. Once the loss contingency is deemed to be both probable and estimable, OFG will establish an accrued liability and record a corresponding amount of expense. At March 31, 2022 and December 31, 2021, this accrued liability amounted to $4.9 million and $7.0 million, respectively. OFG continues to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established.

Subject to the accounting and disclosure framework under the provisions of ASC 450, it is the opinion of OFG’s management, based on current knowledge and after taking into account its current legal accruals, that the eventual outcome of all matters would not be likely to have a material adverse effect on the consolidated statements of financial condition of OFG. Nonetheless, given the substantial or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of such matters, an adverse outcome in certain of these matters could, from time to time, have a material adverse effect on OFG’s consolidated results of operations or cash flows in particular quarterly or annual periods. OFG has

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evaluated all arbitration, litigation and regulatory matters where the likelihood of a potential loss is deemed reasonably possible. OFG has determined that the estimate of the reasonably possible loss is not significant.

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NOTE 20— OPERATING LEASES

Substantially all leases in which OFG is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2038. OFG’s leases do not contain residual value guarantees or material variable lease payments. All leases are classified as operating leases and are included on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. OFG leases to others certain space in its principal offices for terms extending through 2022; all are operating leases.

Operating Lease Cost

	Quarter Ended March 31,
	2022		2021		Statement of Operations <br>Classification
	(In thousands)
Lease costs	$	2,555	$	3,373	Occupancy and equipment
Variable lease costs	547		493		Occupancy and equipment
Short-term lease cost	255		20		Occupancy and equipment
Lease income	(77)		(120)		Occupancy and equipment
Total lease cost	$	3,280	$	3,766

Operating Lease Assets and Liabilities

	March 31,		December 31,
	2022		2021		Statement of Financial Condition Classification
	(In thousands)
Right-of-use assets	$	28,576	$	28,846	Operating lease right-of-use assets
Lease Liabilities	$	30,287	$	30,498	Operating leases liabilities
	March 31, 2022
---	---	---
	(In thousands)
Weighted-average remaining lease term	5.5 years
Weighted-average discount rate	6.6	%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2022 were as follows:

	Minimum Rent
As of March 31, 2022	(In thousands)
2022	$	6,898
2023	8,310
2024	6,153
2025	4,556
2026	3,001
Thereafter	7,656
Total lease payments	$	36,574
Less imputed interest	6,288
Present value of lease liabilities	$	30,287

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OFG, as lessor, leases and subleases real property to lessee tenants under operating leases. As of March 31, 2022, no material lease concessions have been granted to lessees. As of March 31, 2022, OFG, as lessee, has not requested any lease concessions.

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS

OFG follows the fair value measurement framework under U.S. Generally Accepted Accounting Principles (“GAAP”).

Fair Value Measurement

The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Money market investments

The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

Investment securities

The fair value of investment securities is based on valuations obtained from an independent pricing provider, ICE Data Pricing (formerly known as IDC). ICE is a well-recognized pricing company and an established leader in financial information. Such securities are classified as Level 1 or Level 2 depending on the basis for determining fair value. OFG holds one security categorized as other debt that is classified as Level 3. The estimated fair value of the other debt security is determined by using an adjusted third-party model to calculate the present value of projected future cash flows. The assumptions are highly uncertain and include primarily market discount rates and current spread. The assumptions used are drawn from similar securities that are actively traded in the market and have similar risk characteristics. The valuation is performed on a quarterly basis.

Derivative instruments

The fair value of the interest rate swaps is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, the level of interest rates, as well as the expectations for rates in the future. The fair value of most of these derivative instruments is based on observable market parameters, which include discounting the instruments’ cash flows using the U.S. dollar LIBOR-based discount rates (or its fallback benchmark when applicable), and also applying yield curves that account for the industry sector and the credit rating of the counterparty and/or OFG. Certain other derivative instruments with limited market activity are valued using externally developed models that consider unobservable market parameters. Based on their valuation methodology, derivative instruments are classified as Level 2.

Servicing assets

Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.

Foreclosed real estate

Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price opinion or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

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Other repossessed assets

Other repossessed assets include repossessed automobiles. The fair value of the repossessed automobiles may be determined using internal valuation and an external appraisal. These repossessed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.

Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:

	March 31, 2022
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
	(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	10,763	$	868,021	$	1,554	$	880,338
Trading securities	—		18		—		18
Money market investments	5,648		—		—		5,648
Derivative assets	—		6		—		6
Servicing assets	—		—		49,446		49,446
Derivative liabilities	—		(191)		—		(191)
	$	16,411	$	867,854	$	51,000	$	935,265
Non-recurring fair value measurements:
Collateral dependent loans	—		—		21,279		21,279
Foreclosed real estate	—		—		15,297		15,297
Other repossessed assets	—		—		2,625		2,625
	$	—	$	—	$	39,201	$	39,201			December 31, 2021
---	---	---	---	---	---	---	---	---
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
	(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale	$	10,825	$	498,358	$	1,530	$	510,713
Trading securities	—		20		—		20
Money market investments	8,952		—		—		8,952
Derivative assets	—		1		—		1
Servicing assets	—		—		48,973		48,973
Derivative liabilities	—		(804)		—		(804)
	$	19,777	$	497,575	$	50,503	$	567,855
Non-recurring fair value measurements:
Collateral dependent loans	$	—	$	—	$	10,233	$	10,233
Foreclosed real estate	—		—		15,039		15,039
Other repossessed assets	—		—		1,945		1,945
	$	—	$	—	$	27,217	$	27,217

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The fair value information included in the tables above for non-recurring fair value measurements is not as of period end, but as of the date that the fair value measurement was recorded during the quarters ended March 31, 2022 and December 31, 2021, and excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2022 and 2021:

Level 3 Instruments Only

	Quarter Ended March 31,
	2022						2021
	Other debt securities available for sale		Servicing Assets		Total		Servicing Assets
	(In thousands)
Balance at beginning period	$	1,530	$	48,973	$	50,503	$	47,295
New instruments acquired	—		1,119		1,119		1,420
Principal repayments and amortization	—		(1,499)		(1,499)		(1,507)
Gains included in earnings	—		853		853		703
Gains included in other comprehensive income	24		—		24		—
Balance at end of period	$	1,554	$	49,446	$	51,000	$	47,911

There were no transfers into or out of level 3 during the quarters ended March 31, 2022 and 2021.

Servicing assets gains (losses) included in earnings during the quarters ended March 31, 2022 and 2021 were included as mortgage servicing activities in the consolidated statements of operations. There were no changes in unrealized gains and losses from recurring level 3 fair value measurements held at March 31, 2021 during the quarter then ended included in other comprehensive income. For more information on the qualitative information about level 3 fair value measurements, see Note 7 – Servicing Assets.

During the quarters ended March 31, 2022 and 2021, there were purchases and sales of assets and liabilities measured at fair value on a recurring basis.

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The table below presents quantitative information for all assets and liabilities measured at fair value on a recurring and non-recurring basis using significant unobservable inputs (Level 3) at March 31, 2022:

	March 31, 2022
	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average
	(In thousands)
Other debt securities available-for-sale	$	1,554	Cash flow valuation	Credit Rating	Baa1 - Baa3		Baa2
				Probability of Default Rate	0.16% - 2.28%		0.33	%
				Recovery Rate	34.73	%	34.73	%
Servicing assets	$	49,446	Cash flow valuation	Constant prepayment rate	3.88% - 24.30%		5.97	%
				Discount rate	10.00% - 15.50%		11.46	%
Collateral dependent loans	$	21,279	Fair value of property<br>or collateral	Appraised value less disposition costs	10.20% - 30.20%		17.20	%
Foreclosed real estate	$	15,297	Fair value of property<br>or collateral	Appraised value less disposition costs	10.20% - 30.20%		11.79	%
Other repossessed assets	$	2,625	Fair value of property<br>or collateral	Estimated net realizable value less disposition costs	26.00% - 82.00%		56.16	%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Other debt security available for sale – The significant unobservable inputs used in the fair value measurement of one of OFG’s other debt securities is a discounted cash flow methodology (DCF). DCF is a valuation method that uses the concept of the time value of money. The methodology used the future cash flows discounted through a yield to obtain a net present value. Assumptions applied in the model are obtained from Moody’s Default Trends.

Servicing assets – The significant unobservable inputs used in the fair value measurement of OFG’s servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.

Fair Value of Financial Instruments

The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of OFG.

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The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments are the value of long-term customer relationships of retail deposits, and premises and equipment.

The estimated fair value and carrying value of OFG’s financial instruments at March 31, 2022 and 2021 is as follows:

	March 31,				December 31,
	2022				2021
	Fair<br>Value		Carrying<br>Value		Fair<br>Value		Carrying<br>Value
	(In thousands)
Level 1
Financial Assets:
Cash and cash equivalents	$	1,855,554	$	1,855,554	$	2,023,475	$	2,023,475
Restricted cash	$	175	$	175	$	175	$	175
Investment securities available-for-sale	$	10,763	$	10,763	$	10,825	$	10,825
Level 2
Financial Assets:
Trading securities	$	18	$	18	$	20	$	20
Investment securities available-for-sale	$	868,021	$	868,021	$	498,358	$	498,358
Investment securities held-to-maturity	$	329,969	$	359,806	$	363,653	$	367,507
Federal Home Loan Bank (FHLB) stock	$	5,946	$	5,946	$	5,966	$	5,966
Equity securities	$	12,610	$	12,610	$	11,612	$	11,612
Derivative assets	$	6	$	6	$	1	$	1
Financial Liabilities:
Derivative liabilities	$	191	$	191	$	804	$	804
Level 3
Financial Assets:
Investment securities available for sale	$	1,554	$	1,554	$	1,530	$	1,530
Total loans (including loans held-for-sale)	$	6,360,479	$	6,449,130	$	6,197,347	$	6,329,311
Accrued interest receivable	$	56,097	$	56,097	$	56,560	$	56,560
Servicing assets	$	49,446	$	49,446	$	48,973	$	48,973
Accounts receivable and other assets	$	82,686	$	82,686	$	88,756	$	88,756
Financial Liabilities:
Deposits	$	8,987,296	$	8,978,222	$	8,614,073	$	8,603,118
Advances from FHLB	$	28,022	$	28,035	$	28,480	$	28,488
Subordinated capital notes	$	—	$	—	$	36,084	$	36,083
Accrued expenses and other liabilities	$	83,492	$	83,492	$	96,240	$	96,240

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The following methods and assumptions were used to estimate the fair values of significant financial instruments at March 31, 2022 and December 31, 2021:

•Cash and cash equivalents (including money market investments and time deposits with other banks), restricted cash, accrued interest receivable, accounts receivable and other assets, and accrued expenses and other liabilities have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.

•Investments in FHLB-NY stock are valued at their redemption value.

•The fair value of investment securities, including trading securities, is based on quoted market prices, when available or prices provided from contracted pricing providers, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. Equity securities do not have readily available fair values and are measured at cost, less any impairment. The estimated fair value of the convertible note is determined by using an adjusted third-party cash flow valuation model to calculate the present value of projected future cash flows. The assumptions used which are highly uncertain and require a high degree of judgment, include primarily market discount rates, current spreads, duration, leverage, default, and loss rates. The assumptions used are drawn from a wide array of data sources, including the performance of the collateral underlying each deal. The valuation, which is obtained at least on a quarterly basis, is analyzed and its assumptions are evaluated and incorporated in either an internal-based valuation model, when deemed necessary, or compared to counterparties’ prices and agreed by management.

•The fair value of servicing asset is estimated by using a cash flow valuation model which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.

•The fair values of the derivative instruments, which include interest rate swaps and forward-settlement swaps, are based on the net discounted value of the contractual projected cash flows of both the pay-fixed receive-variable legs of the contracts. The projected cash flows are based on the forward yield curve and discounted using current estimated market rates.

•The fair value of the loan portfolio (including loans held-for-sale and non-performing loans) is based on the exit market price, which is estimated by segregating by type, such as mortgage, commercial, consumer, auto and leasing. Each loan segment is further segmented into fixed and adjustable interest rates. The fair value is calculated by discounting contractual cash flows, adjusted for prepayment estimates (voluntary and involuntary), if any, using estimated current market discount rates that reflect the credit and interest rate risk inherent in the loan.

•The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.

•The fair value of long-term borrowings, which include advances from FHLB and subordinated capital notes is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 22 – BANKING AND FINANCIAL SERVICE REVENUES

The following table presents the major categories of banking and financial service revenues for the quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31,
	2022		2021
	(In thousands)
Banking service revenues:
Checking accounts fees	$	2,145	$	1,962
Savings accounts fees	279		252
Electronic banking fees	13,094		12,883
Credit life commissions	304		117
Branch service commissions	360		361
Servicing and other loan fees	1,137		765
International fees	239		151
Miscellaneous income	4		6
Total banking service revenues	17,562		16,497
Wealth management revenue:
Insurance income	3,034		2,231
Broker fees	1,889		2,124
Trust fees	2,741		2,781
Retirement plan and administration fees	193		252
Total wealth management revenue	7,857		7,388
Mortgage banking activities:
Net servicing fees	4,363		4,351
Net gains on sale of mortgage loans and valuation	1,315		2,492
Other	104		(1,270)
Total mortgage banking activities	5,782		5,573
Total banking and financial service revenues	$	31,201	$	29,458

OFG recognizes the revenue from banking services, wealth management and mortgage banking based on the nature and timing of revenue streams from contracts with customer:

Banking Service Revenues

Electronic banking fees are credit and debit card processing services, use of the Bank’s ATMs by non-customers, debit card interchange income and service charges on deposit accounts. Revenue is recorded once the contracted service has been provided.

Service charges on checking and saving accounts as consumer periodic maintenance revenue is recognized once the service is rendered, while overdraft and late charges revenue are recorded after the contracted service has been provided.

Other income as credit life commissions, servicing and other loan fees, international fees, and miscellaneous fees recognized as banking services revenue are out of the scope of ASC 606 – Revenue from Contracts with Customers.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Wealth Management Revenue

Insurance income from commissions and sale of annuities are recorded once the sale has been completed.

Brokers fees consist of two categories:

•Sales commissions generated by advisors for their clients’ purchases and sales of securities and other investment products, which are collected once the stand-alone transactions are completed at trade date or as earned, and managed account fees which are fees charged to advisors’ clients’ accounts on OFG’s corporate advisory platform. These revenues do not cover future services, as a result there is no need to allocate the amount received to any other service.

•Fees for providing distribution services related to mutual funds, net of compensation paid to a service provider who provides such services, as well as trailer fees (also known as 12b-1 fees). These fees are considered variable and are recognized over time, as the uncertainty of the fees to be received is resolved as the net asset value of the mutual fund is determined and investor activity occurs. Fees do not cover future services, as a result there is no need to allocate the amount received to any other service.

Retirement plan and administration fees are revenues related to the payment received from the clients of OPC for assistance with the planning, design and administration of retirement plans, acting as third-party administrator for such plans, and daily record keeping services of retirement plans. Fees are collected once the stand-alone transaction was completed at trade date. Fees do not cover future services, as a result there is no need to allocate the amount received to any other service.

Trust fees are revenues related to fiduciary services provided to 401K retirement plans, an IRA trust, and retirement plans, which include investment management, payment of distributions, if any, safekeeping, custodial services of plan assets, servicing of Trust officers, on-going due diligence of the Trust, recordkeeping of transactions, and investment advisory services provided to a registered investment company. Fees are billed based on services contracted. Negotiated fees are detailed in the contract. Fees collected in advance, are amortized over the term of the contract. Fees are collected on a monthly basis once the administrative service has been completed. Monthly fee does not include future services.

Investment banking fees as compensation fees are out of the scope of ASC 606.

Mortgage Banking Activities

Mortgage banking activities as servicing fees, gain on sale of mortgage loans valuation and other are out of the scope of ASC 606.

NOTE 23 – BUSINESS SEGMENTS

OFG segregates its businesses into the following major reportable segments of business: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as OFG’s organization, nature of its products, distribution channels and economic characteristics of the products 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. 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. These factors are reviewed on a periodical basis and may change if the conditions warrant.

Banking includes the Bank’s branches and traditional banking products such as deposits and commercial, consumer and mortgage loans. Mortgage banking activities are carried out by the Bank’s mortgage banking division, whose principal activity is to originate mortgage loans for OFG’s own portfolio. As part of its mortgage banking activities, OFG may sell loans directly into the secondary market or securitize conforming loans into mortgage-backed securities.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Wealth Management is comprised of the Bank’s trust division, Oriental Financial Services, Oriental Insurance, OFG Reinsurance and OPC. The core operations of this segment are financial planning, money management and investment banking, brokerage services, investment advisory services, insurance, corporate and individual trust and retirement services, as well as retirement plan administration services.

The Treasury segment encompasses all of OFG’s asset/liability management activities, such as purchases and sales of investment securities, interest rate risk management, derivatives, and borrowings. Intersegment sales and transfers, if any, are accounted for as if the sales or transfers were to third parties, that is, at current market prices.

Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2022 and 2021:

	Quarter Ended March 31, 2022
	Banking		Wealth<br>Management		Treasury		Total Major<br>Segments		Eliminations		Consolidated<br>Total
	(In thousands)
Interest income	$	108,483	$	5	$	4,461	$	112,949	$	—	$	112,949
Interest expense	(7,532)		—		(223)		(7,755)		—		(7,755)
Net interest income	100,951		5		4,238		105,194		—		105,194
Provision (recapture of) for credit losses	1,710		—		(159)		1,551		—		1,551
Non-interest income	23,550		8,006		50		31,606		—		31,606
Non-interest expenses	(75,916)		(4,585)		(654)		(81,155)		—		(81,155)
Intersegment revenue	489		—		—		489		(489)		—
Intersegment expenses	—		(343)		(146)		(489)		489		—
Income before income taxes	47,364		3,083		3,647		54,094		—		54,094
Income tax expense	16,564		—		9		16,573		—		16,573
Net income	$	30,800	$	3,083	$	3,638	$	37,521	$	—	$	37,521
Total assets	$	8,176,217	$	24,695	$	3,036,638	$	11,237,550	$	(1,047,430)	$	10,190,120

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Quarter Ended March 31, 2021
	Banking		Wealth<br>Management		Treasury		Total Major<br>Segments		Eliminations		Consolidated<br>Total
	(In thousands)
Interest income	$	108,230	$	12	$	2,734	$	110,976	$	—	$	110,976
Interest expense	(12,136)		—		(642)		(12,778)		—		(12,778)
Net interest income	96,094		12		2,092		98,198		—		98,198
Provision (recapture of) for credit losses	6,588		—		(264)		6,324		—		6,324
Non-interest income	22,873		7,531		9		30,413		—		30,413
Non-interest expenses	(73,874)		(2,829)		(963)		(77,666)		—		(77,666)
Intersegment revenue	553		—		—		553		(553)		—
Intersegment expenses	—		(291)		(262)		(553)		553		—
Income before income taxes	39,058		4,423		1,140		44,621		—		44,621
Income tax expense	14,236		—		12		14,248		—		14,248
Net income	$	24,822	$	4,423	$	1,128	$	30,373	$	—	$	30,373
Total assets	$	8,312,367	$	28,505	$	2,849,709	$	11,190,581	$	(1,037,239)	$	10,153,342

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read the following discussion and analysis of our financial condition and results of operations together with the “Selected Financial Data” and our consolidated financial statements and related notes included under Item I, “Financial Statements” of this report on Form 10-Q. This discussion and analysis contains forward-looking statements. Please see “Forward-Looking Statements,” “Risk Factors,” and “Quantitative and Qualitative Disclosures about Market Risk” in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and set forth in our Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), for discussion of the uncertainties, risks and assumptions associated with these statements. We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in Item 2 of our Form 10-Q for the quarter ended March 31, 2021.

Other factors not identified above, including those described under the headings in our Annual Report on Form 10-K for the year ended December 31, 2021 may also cause actual results to differ materially from those described in our forward-looking statements.

OFG is a publicly-owned financial holding company that provides wide range of banking and financial services such as commercial, consumer and mortgage lending, auto loans and leasing, financial planning, insurance sales, money management and investment banking and brokerage services, as well as corporate and individual trust services. OFG operates through three major business segments: Banking, Wealth Management, and Treasury, and distinguishes itself based on quality service. OFG conducts its business through its main office in San Juan, Puerto Rico, forty nine branches in Puerto Rico and two branches in the U.S. Virgin Islands (the “USVI”). OFG has three subsidiaries with operations in Puerto Rico: the Bank, Oriental Financial Services and Oriental Insurance; three subsidiaries in the United States, OPC, OFG USA and OFG Ventures; and one subsidiary in the Cayman Islands, OFG Reinsurance. OFG’s long-term goal is to strengthen its banking and financial services franchise by expanding its lending businesses, increasing the level of integration in the marketing and delivery of banking and financial services, continuously improving our already effective asset-liability management, growing non-interest revenue from banking and financial services, and achieving greater operating efficiencies.

OFG’s diversified mix of businesses and products generates both the interest income traditionally associated with a banking institution and non-interest income traditionally associated with a financial services institution (generated by such businesses as securities brokerage, fiduciary services, investment banking, insurance agency, reinsurance and retirement plan administration). Although all of these businesses, to varying degrees, are affected by interest rate and financial market fluctuations and other external factors, OFG’s commitment is to continue producing a balanced and growing revenue stream.

RECENT DEVELOPMENTS

Capital Actions

In January 2022, OFG announced that its Board of Directors approved the increase of its regular quarterly cash dividend by 25%, to $0.15 per common share from $0.12 per share, beginning on the quarter ended March 31, 2022. The Board of Directors also approved a new stock repurchase program to purchase $100 million of its common stock in the open market, which OFG expects to complete during the 2022 fiscal year. At March 31, 2022, OFG has repurchased 1.2 million shares of common stock for $33.5 million.

Covid-19 Pandemic and Economic Conditions

Since March 2020, the COVID-19 pandemic has adversely affected our communities and the way we do business, as well as, economic activity globally, nationally and locally. Among other things, interest rates declined, unemployment increased and economic output slowed dramatically during 2020.

Within the last year, as restrictions related to the pandemic eased in the United States, employment increased and pent-up demand was released, which together with COVID-19 lockdowns in foreign jurisdictions created global supply chain issues and shortages of goods, which in turn has triggered price inflation. In an effort to address inflation, the Federal Reserve Bank ("FRB") has slowed monetary accommodation and on March 16, 2022 increased the federal funds rate 25 bps, in the first of what is expected to be a series of rate increases during 2022.

Adding to economic uncertainty and increased inflationary pressures are military actions taken by Russia against Ukraine commencing in February 2022, which have added stress to existing supply chain concerns and placed upward pressure on oil and natural gas prices.

The macroeconomic outlook for Puerto Rico continues to show strength. Unemployment, employment participation, manufacturing, residential home values are all moving in the right direction. Our commercial clients are experiencing a higher demand for their products and services. Consumer demand also remains strong, and at long last, Puerto Rico has exited bankruptcy. Nevertheless, any recovery of the Puerto Rican economy could be adversely impacted by macroeconomic developments within the United States and across the globe. The global macroeconomic outlook continues to remain uncertain and at this time, OFG cannot reasonably estimate the term or intensity of any possible adverse impact on our financial position, operations or liquidity, resulting from economic disruption and uncertainty related to COVID-19 variants, trade and supply chain disruption, continuing inflationary pressures, ongoing military actions against Ukraine, and the uncertainty of the timing and extent of potential actions that might be taken by the FRB. However, the high levels of reconstruction and stimulus funds are serving as a good cushion to dampen the negative effects.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with GAAP requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the consolidated financial statements. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We provide a summary of our significant accounting policies in “Note 1—Summary of Significant Accounting Policies” of our 2021 Form 10-K.

In the “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” section of our 2021 Form 10-K, we identified the Allowance for Credit Losses related to loans collectively evaluated for impairment as a critical accounting policy and estimate, because it involves significant estimation uncertainty that has or is reasonably likely to have a material impact on our financial condition or results of operations.

We evaluate our critical accounting estimates and judgments on an ongoing basis and update them as necessary based on changing conditions. There have been no material changes in the methods used to formulate these critical accounting estimates from those discussed in our 2021 Form 10-K.

FINANCIAL HIGHLIGHTS

During the quarter ended March 31, 2022, OFG's core business demonstrated strong momentum with solid loan and deposit growth, net interest margin (“NIM”) expansion, and lower provision. Total assets reached $10.2 billion, expenses remained in line, and OFG repurchased $33.5 million of shares of common stock as part of our $100 million buyback program. The Puerto Rico economic environment continues to trend positively, while OFG continues to focus on improving the customer experience and growing together with our clients and the communities we serve. During the quarter, for example, OFG introduced fully proprietary digital processes to apply for consumer loans and to open and contribute into our IRA fund.

Earnings Per Share diluted was $0.76 compared to $0.66 in the fourth quarter of 2021 and $0.56 in the first quarter of 2021. Total core revenues were $136.4 million compared to $141.0 million in the fourth quarter of 2021 and $127.7 million in the first quarter of 2021.

Net Interest Income was $105.2 million compared to $104.2 million in the fourth quarter of 2021 and $98.2 million in the first quarter of 2021. NIM expanded to 4.47% from 4.18% in the fourth quarter of 2021 primarily due to increased volume of loans and investments.

Interest Income totaled $112.9 million compared to $112.6 million in the fourth quarter of 2021 and $111.0 million in the first quarter of 2021. Compared to the fourth quarter of 2021, interest income benefited from higher yields on higher average balances of loans and investment securities and higher average yields on cash, which was offset by two fewer days that reduced interest income by $1.7 million.

Total Interest Expense of $7.8 million compared to $8.4 million in the fourth quarter of 2021 and 12.8 million in the first quarter of 2021. Compared to the fourth quarter of 2021, interest expense reflected lower average balances and costs of deposits and borrowings, partially offset by $0.4 million to expense unamortized issuance costs as a result of the redemption of $36.1 million in 3.23% variable rate subordinated notes.

Banking and Financial Service Revenues was $31.2 million compared to $29.5 million in the first quarter of 2021 and $36.8 million in the fourth quarter of 2021, which included $4.3 million in annual insurance commissions. These revenues reflected higher levels of banking service, mortgage banking, and wealth management revenues compared to the first quarter of 2021.

Pre-Provision Net Revenues totaled $55.6 million compared to $55.8 million in the fourth quarter of 2021 and $50.9 million in the first quarter of 2021.

Provision for credit losses of $1.6 million compared to $7.2 million in the fourth quarter of 2021 and $6.3 million in the first quarter of 2021. The provision for credit losses included a $4.0 million increase related to the growth of loan balances and a $4.2 million increase for a commercial loan previously placed in non-accrual, partially offset by a $5.7 million reduction in the qualitative adjustment due to improved economic conditions. The fourth quarter of 2021 included a provision of $9.7 million related to transferring certain past due loans to held for sale.

Credit Quality: Net charge off rate and early and total delinquency rates fell to 0.04%, 1.97% and 3.17%, respectively, compared to the previous and year ago quarters. The first quarter of 2022 net charge offs included a $2.8 million recovery from an acquired PCD loan and a $1.1 million recovery as part of the final settlement of the non-performing mortgage loans sale contracted for in the fourth quarter of 2021.

Non-Interest Expenses totaled $81.2 million compared to $86.5 million in the fourth quarter of 2021 and $77.7 million in the first quarter of 2021. The $5.3 million reduction from the fourth quarter of 2021 primarily reflected lower legal reserve provisions ($2.4 million) and lower combination of other items (totaling $2.1 million), including operational losses, technology related expenses, and training costs.

Loans Held for Investment were $6.55 billion compared to $6.40 billion at December 31, 2021 and $6.59 billion at March 31, 2021. Loans grew $145.4 million from the fourth quarter of 2021, reflecting increases in commercial loans (net of PPP forgiveness) as well as increases in consumer and auto loans.

New Loan Originations of $623.2 million compared to $632.7 million in the fourth quarter of 2021 and $527.6 million in the first quarter of 2021, which included $126.3 million of PPP loans. The first quarter of 2022 reflected continued, high levels of auto lending, commercial lending in Puerto Rico and US, and increased demand for consumer lending.

Customer Deposits totaled $8.97 billion at March 31, 2022 compared to $8.59 billion at December 31, 2021 and $8.72 billion at March 31, 2021. Core deposits grew $375.1 million from December 31, 2021, reflecting increases in commercial and retail accounts.

Capital: CET1 ratio was 13.24% compared to 13.77% at December 31, 2021 and 13.56% at March 31, 2021. Tangible book value per share was $18.90 compared to $19.08 at December 31, 2021 and $17.39 at March 31, 2021. The decline in CET1 and tangible book value per share from December 31, 2021 reflected the repurchase of 1.2 million shares of common stock and reduction in other comprehensive income, partially offset by an increase in retained earnings.

Selected income statement and balance sheet data and key performance indicators are presented in the tables below:

	Quarter Ended March 31,
	2022			2021			Variance %
EARNINGS DATA:	(In thousands, except per share data)
Interest income	$	112,949		$	110,976		1.8%
Interest expense	7,755			12,778			(39.3)%
Net interest income	105,194			98,198			7.1%
Provision for loan and lease losses	1,551			6,324			(75.5)%
Net interest income after provision for loan and leases losses	103,643			91,874			12.8%
Non-interest income	31,606			30,413			3.9%
Non-interest expenses	81,155			77,666			4.5%
Income before taxes	54,094			44,621			21.2%
Income tax expense	16,573			14,248			16.3%
Net income	37,521			30,373			23.5%
Less: dividends on preferred stock	—			(1,255)			(100.0)%
Income available to common shareholders	$	37,521		$	29,118		28.9%
PER SHARE DATA:
Basic	$	0.77		$	0.57		35.1%
Diluted	$	0.76		$	0.56		35.7%
Average common shares outstanding	48,968			51,397			(4.7)%
Average common shares outstanding and equivalents	49,484			51,752			(4.4)%
Cash dividends declared per common share	$	0.15		0.08			87.5%
Cash dividends declared on common shares	$	7,438		4,116			80.7%
PERFORMANCE RATIOS:
Return on average assets (ROA)	1.48		%	1.21		%	22.3%
Return on average tangible common stockholders' equity	15.88		%	13.11		%	21.1%
Return on average common equity (ROE)	14.08		%	11.43		%	23.2%
Efficiency ratio	59.50		%	60.84		%	(2.2)%
Interest rate spread	4.45		%	4.21		%	5.7%
Interest rate margin	4.47		%	4.26		%	4.9%
	March 31,			December 31,			Variance
---	---	---	---	---	---	---	---
	2022			2021			%
PERIOD END BALANCES AND CAPITAL RATIOS:	(In thousands, except per share data)
Investments and loans
Investment securities	$	1,258,718		$	895,818		40.5%
Loans, net	6,449,130			6,329,311			1.9%
Total investments and loans	$	7,707,848		$	7,225,129		6.7%
Deposits and borrowings
Deposits	$	8,978,222		$	8,603,118		4.4%
Other borrowings	28,035			64,571			(56.6)%
Total deposits and borrowings	$	9,006,257		$	8,667,689		3.9%
Stockholders’ equity
Common stock	59,885			59,885			—%
Additional paid-in capital	633,796			637,061			(0.5)%
Legal surplus	121,389			117,677			3.2%
Retained earnings	426,320			399,949			6.6%
Treasury stock, at cost	(180,717)			(150,572)			20.0%
Accumulated other comprehensive (loss) income	(20,638)			5,160			(500.0)%
Total stockholders' equity	$	1,040,035		$	1,069,160		(2.7)%
Per share data
Book value per common share	$	21.37		$	21.54		(0.8)%
Tangible book value per common share	$	18.90		$	19.08		(0.9)%
Market price	$	26.64		$	26.56		0.3%
Capital ratios
Leverage capital	9.54		%	9.69		%	(1.5)%
Common equity Tier 1 capital	13.24		%	13.77		%	(3.8)%
Tier 1 risk-based capital	13.24		%	14.27		%	(7.2)%
Total risk-based capital	14.49		%	15.52		%	(6.6)%
Financial assets managed
Trust assets managed	$	3,608,480		$	3,758,895		(4.0)%
Broker-dealer assets gathered	2,311,922			2,466,004			(6.2)%
Total assets managed	$	5,920,402		$	6,224,899		(4.9)%

ANALYSIS OF RESULTS OF OPERATIONS

The following tables show major categories of interest-earning assets and interest-bearing liabilities, their respective interest income, expenses, yields and costs, and their impact on net interest income due to changes in volume and rates for the quarters ended March 31, 2022 and 2021.

TABLE 1 - ANALYSIS OF NET INTEREST INCOME AND CHANGES DUE TO VOLUME/RATE

FOR THE QUARTERS ENDED MARCH 31, 2022 AND 2021

	Interest				Average rate				Average balance
	March 2022		March 2021		March 2022		March 2021		March 2022		March 2021
	(Dollars in thousands)
A - TAX EQUIVALENT SPREAD
Interest-earning assets	$	112,949	$	110,976	4.80	%	4.81	%	$	9,540,266	$	9,358,377
Tax equivalent adjustment	2,476		2,170		0.11	%	0.09	%	—		—
Interest-earning assets - tax equivalent	115,425		113,146		4.91	%	4.90	%	9,540,266		9,358,377
Interest-bearing liabilities	7,755		12,778		0.35	%	0.60	%	8,864,175		8,682,584
Tax equivalent net interest income / spread	107,670		100,368		4.56	%	4.30	%	676,091		675,793
Tax equivalent interest rate margin					4.67	%	4.39	%
B - NORMAL SPREAD
Interest-earning assets:
Investments:
Investment securities	4,455		2,176		1.88	%	1.68	%	949,035		518,038
Interest bearing cash and money market investments	929		595		0.18	%	0.11	%	2,072,112		2,204,431
Total investments	5,384		2,771		0.72	%	0.41	%	3,021,147		2,722,469
Non-PCD loans
Mortgage	9,353		10,774		5.29	%	5.35	%	706,715		806,090
Commercial	29,571		27,726		5.36	%	5.29	%	2,236,213		2,126,872
Consumer	12,716		11,615		11.20	%	11.45	%	460,571		411,377
Auto and leasing	34,991		32,815		8.30	%	8.59	%	1,710,216		1,549,535
Total Non-PCD loans	86,631		82,930		6.87	%	6.87	%	5,113,715		4,893,874
PCD loans
Mortgage	17,342		20,031		5.89	%	5.57	%	1,178,444		1,437,214
Commercial	3,250		4,588		6.16	%	6.68	%	213,964		278,550
Consumer	47		37		14.24	%	8.05	%	1,319		1,810
Auto and leasing	295		619		10.25	%	10.26	%	11,677		24,460
Total PCD loans	20,934		25,275		5.96	%	5.80	%	1,405,404		1,742,034
Total loans (1)	107,565		108,205		6.69	%	6.61	%	6,519,119		6,635,908
Total interest-earning assets	112,949		110,976		4.80	%	4.81	%	9,540,266		9,358,377
Interest-bearing liabilities:
Deposits:
NOW Accounts	2,140		2,393		0.31	%	0.40	%	2,813,037		2,397,673
Savings and money market	1,198		2,124		0.22	%	0.43	%	2,248,193		2,003,963
Time deposits	2,057		5,507		0.70	%	1.26	%	1,199,340		1,775,828
Total core deposits	5,395		10,024		0.35	%	0.66	%	6,260,570		6,177,464
Brokered deposits	8		163		0.30	%	1.44	%	11,366		45,955
	5,403		10,187		0.35	%	0.66	%	6,271,936		6,223,419
Non-interest bearing deposits	—		—		—		0.00	%	2,547,977		2,358,214
Fair value premium and core deposit intangible amortizations	1,638		1,837		—		0.00	%	—			—
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Total deposits	7,041		12,024		0.32	%	0.57	%	8,819,913			8,581,633
Borrowings:
Securities sold under agreements to repurchase	—		—		—	%	—	%	—			—
Advances from FHLB and other borrowings	193		459		2.77	%	2.87	%	28,184			64,868
Subordinated capital notes	521		295		13.15	%	3.31	%	16,078			36,083
Total borrowings	714		754		6.54	%	3.03	%	44,262			100,951
Total interest-bearing liabilities	7,755		12,778		0.35	%	0.60	%	8,864,175			8,682,584
Net interest income / spread	$	105,194	$	98,198	4.45	%	4.21	%
Interest rate margin					4.47	%	4.26	%
Excess of average interest-earning assets over average interest-bearing liabilities									$	676,091		$	675,793
Average interest-earning assets to average interest-bearing liabilities ratio									107.63		%	107.78		%
(1) Includes loans held for sale and excludes allowance for credit losses.

C - CHANGES IN NET INTEREST INCOME DUE TO:

	Volume		Rate		Total
	(In thousands)
Interest Income:
Investment securities	$	1,957	$	322	$	2,279
Interest bearing cash and money market investments	(36)		370		334
Loans	617		(1,257)		(640)
Total interest income	2,538		(565)		1,973
Interest Expense:
NOW Accounts	373		(626)		(253)
Savings and money market	233		(1,159)		(926)
Time deposits	(1,532)		(1,918)		(3,450)
Brokered deposits	(75)		(80)		(155)
Fair value premium and core deposit intangible amortizations	—		(199)		(199)
Advances from FHLB and other borrowings	(251)		(15)		(266)
Subordinated capital notes	(240)		466		226
Total interest expense	(1,492)		(3,531)		(5,023)
Net Interest Income	$	4,030	$	2,966	$	6,996

Net Interest Income

Net interest income is a function of the difference between rates earned on OFG’s interest-earning assets and rates paid on its interest-bearing liabilities (interest rate spread) and the relative amounts of its interest earning assets and interest-bearing liabilities (interest rate margin). OFG constantly monitors the composition and re-pricing of its assets and liabilities to maintain its net interest income at adequate levels.

Comparison of quarters ended March 31, 2022 and 2021

Net interest income of $105.2 million increased $7.0 million from $98.2 million. Tax equivalent basis net interest income of $107.7 million increased $7.3 million, or 7.3%, from $100.4 million.

Interest rate spread increased 24 basis points to 4.45% from 4.21% and net interest margin increased 21 basis points to 4.47% from 4.26%. This increase reflects a decrease of 25 basis point in the total average cost of interest-bearing liabilities.

Net interest income was positively impacted by:

•Lower interest expense by $5.0 million, reflecting both a reduced cost and lower average balances of total deposits and borrowings, partially offset by a $405 thousand write off unamortized issuance costs related to the early redemption of $36.1 million variable rate subordinated capital notes during the quarter.

•An increase of $2.3 million in interest income from investments securities related to purchases of available-for-sale and held-to-maturity mortgage backed securities during 2022 and 2021.

Net interest income was negatively impacted by a decrease in interest income from loans of $0.6 million, reflecting a decrease of $4.3 million mostly in commercial and mortgage loan portfolios purchased with credit deterioration (“PCD”), offset by higher interest income of $3.7 million in non-PCD auto, commercial and consumer loans.

TABLE 2 - NON-INTEREST INCOME SUMMARY

	Quarter Ended March 31,
	2022		2021		Variance
	(In thousands)
Banking service revenue	$	17,562	$	16,497	6.5	%
Wealth management revenue	7,857		7,388		6.3	%
Mortgage banking activities	5,782		5,573		3.8	%
Total banking and financial service revenue	31,201		29,458		5.9	%
Net gain (loss) on:
Other non-interest income	405		955		(57.6)	%
Total non-interest income, net	$	31,606	$	30,413	3.9	%

Non-Interest Income

Non-interest income is affected by the amount of the Bank’s trust department assets under management, transactions generated by clients’ financial assets serviced by OFG’s securities broker-dealer, insurance agency and reinsurance subsidiaries, the level of mortgage banking activities, fees generated from loans and deposit accounts, and gains on sales of assets.

Comparison of quarters ended March 31, 2022 and 2021

OFG recorded non-interest income, net, in the amount of $31.6 million, compared to $30.4 million, an increase of 3.9%, or $1.2 million. The increase in non-interest income was mainly due to:

•An increase of $1.1 million in banking service revenues, as a result of an increase of $370 thousand in servicing and prepayment loan fees, $213 thousand in electronic banking fees from transaction volumes, $188 thousand in credit life commissions, $183 thousand in checking account fees, and $88 thousand in international fees;

•An increase of $469 thousand in wealth management revenue due to the new reinsurance business income of $803 thousand, partially offset by a decrease in broker-dealer revenues of $235 thousand. Broker-dealer revenues

decreased due to lower income from equity and mutual fund retailer fees by $461 thousand and higher advisory and trailer fees by $242 thousand; and

•An increase of $209 thousand in mortgage-banking activities due to lower losses on repurchase loans and other mortgage banking activities by $1.4 million, offset by lower gains on loans sold by $1.2 million due to decrease in sales.

The increases mentioned above were partially offset by a $592 thousand decrease in other non-interest income, primarily related to the effect in the prior year quarter of a recovery of $610 thousand on a receivable previously written-off.

TABLE 3 - NON-INTEREST EXPENSES SUMMARY

	Quarter Ended March 31,
	2022			2021			Variance %
	(In thousands)
Compensation and employee benefits	$	34,768		$	32,618		6.6	%
Occupancy, equipment and infrastructure costs	11,916			13,128			-9.2	%
Electronic banking charges	9,786			8,232			18.9	%
Professional and service fees	5,421			4,536			19.5	%
Information technology expenses	4,804			4,254			12.9	%
Taxes, other than payroll and income taxes	3,307			3,661			-9.7	%
Insurance	2,635			2,455			7.3	%
Loan servicing and clearing expenses	1,922			1,841			4.4	%
Advertising, business promotion, and strategic initiatives	2,062			1,431			44.1	%
Pandemic expenses	881			1,769			-50.2	%
Communication	1,116			966			15.5	%
Printing, postage, stationery and supplies	1,092			1,217			-10.3	%
Director and investor relations	249			300			-17.0	%
Foreclosed real estate and other repossessed assets income, net of expenses	(1,482)			(50)			2,864.0	%
Other	2,678			1,308			104.7	%
Total non-interest expenses	$	81,155		$	77,666		4.5	%
Relevant ratios and data:
Efficiency ratio	59.50		%	60.84		%
Compensation and benefits to non-interest expense	42.84		%	42.00		%
Compensation to average total assets owned (annualized)	1.38		%	1.30		%
Average number of employees	2,259			2,231
Average compensation per employee (annualized, in thousands)	$	61.56		$	58.5
Average loans per average employee	$	2,886		$	2,974

Non-Interest Expenses

Comparison of quarters ended March 31, 2022 and 2021

Non-interest expense was $81.2 million, representing an increase of 4.5%, or $3.5 million, compared to $77.7 million.

The increase in non-interest expense was mainly due to:

•Increase in compensation and employee benefits by $2.2 million, mainly due to a one-time $1.3 million pandemic employee tax credit in prior year quarter, $1.5 million higher salary expenses associated with an increase in minimum hourly wages during the third quarter of 2021 and annual salary increase during the current quarter. These increases were offset by a $825 thousand decrease in commissions and incentives mainly due to a change in payout structure;

•Increase in electronic banking charges by $1.6 million driven by increases in merchant fees and debit and credit card billing fees due to higher transaction volumes in the current quarter;

•Increase in other non-interest expense by $1.4 million, mainly reflecting higher claims and settlements by $873 thousand due to the reversal of $1.2 million reserve in the prior year quarter as a result of a favorable arbitration award, and $568 thousand higher operational losses; and

•Increase in professional and service fees by $885 thousand due to higher consulting, outsourcing and legal fees.

The increase in non-interest expense was partially offset by:

•Improvements in foreclosed real estate and other repossessed assets income by $1.4 million reflecting an increase of $924 thousand in gains on sales of other repossessed assets and $559 thousand in net gain on sale of foreclosed real estate; and

•Decrease in occupancy, equipment and infrastructure expenses by $1.2 million reflecting lower rent, building maintenance and security guard expenses related to branch consolidations during 2021 and 2022.

The efficiency ratio was 59.50% and improved from 60.84%. The efficiency ratio measures how much of OFG’s revenues is used to pay operating expenses. OFG computes its efficiency ratio by dividing non-interest expenses by the sum of its net interest income and non-interest income, but excluding gains on the sale of investment securities, derivatives gains or losses, other gains and losses, and other income that may be considered volatile in nature. Management believes that the exclusion of those items permits consistent comparability. Amounts presented as part of non-interest income that are excluded from the adjusted efficiency ratio computation for the quarters ended March 31, 2022 and 2021 amounted to $405 thousand and $955 thousand, respectively.

Provision for Credit Losses

Comparison of quarters ended March 31, 2022 and 2021

Based on an analysis of the credit quality and the composition of OFG’s loan portfolio, management determined that the provision for the quarter ended March 31, 2022 was adequate to maintain the allowance for credit losses at an appropriate level to provide for expected credit losses based upon an evaluation of known and inherent risks.

Provision for credit losses decreased $4.8 million from $6.3 million to $1.6 million. The provision for credit losses for the quarter ended March 31, 2022 includes a provision of $4.0 million related to growth in loan balances, an increase of $4.2 million related to a commercial loan previously placed in non-accrual status, and a decrease of $5.7 million associated with qualitative adjustments due to improved macroeconomic conditions. The provision for credit losses for prior year quarter included a $3.7 million release of Covid-19 related loan reserves and a $3.5 million provision for a commercial loan in workout prior to the pandemic.

Income Taxes

Comparison of quarters ended March 31, 2022 and 2021

OFG’s effective tax rate (“ETR”) was 30.6% in 2022 compared to 31.9% in 2021. The decrease in ETR is mainly related to a discrete income tax windfall for stocks vested during the quarter.

Business Segments

OFG segregates its businesses into the following major reportable segments: Banking, Wealth Management, and Treasury. Management established the reportable segments based on the internal reporting used to evaluate performance and to assess where to allocate resources. Other factors such as 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. 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. Following are the results of operations and the selected financial information by operating segment for the quarters ended March 31, 2022 and 2021.

	Quarter Ended March 31, 2022
	Banking		Wealth<br>Management		Treasury		Total Major<br>Segments		Eliminations		Consolidated<br>Total
	(In thousands)
Interest income	$	108,483	$	5	$	4,461	$	112,949	$	—	$	112,949
Interest expense	(7,532)		—		(223)		(7,755)		—		(7,755)
Net interest income	100,951		5		4,238		105,194		—		105,194
Provision (recapture) for credit losses	1,710		—		(159)		1,551		—		1,551
Non-interest income	23,550		8,006		50		31,606		—		31,606
Non-interest expenses	(75,916)		(4,585)		(654)		(81,155)		—		(81,155)
Intersegment revenue	489		—		—		489		(489)		—
Intersegment expenses	—		(343)		(146)		(489)		489		—
Income before income taxes	47,364		3,083		3,647		54,094		—		54,094
Income tax expense	16,564		—		9		16,573		—		16,573
Net income	$	30,800	$	3,083	$	3,638	$	37,521	$	—	$	37,521
Total assets	$	8,176,217	$	24,695	$	3,036,638	$	11,237,550	$	(1,047,430)	$	10,190,120
	Quarter Ended March 31, 2021
---	---	---	---	---	---	---	---	---	---	---	---	---
	Banking		Wealth<br>Management		Treasury		Total Major<br>Segments		Eliminations		Consolidated<br>Total
	(In thousands)
Interest income	$	108,230	$	12	$	2,734	$	110,976	$	—	$	110,976
Interest expense	(12,136)		—		(642)		(12,778)		—		(12,778)
Net interest income	96,094		12		2,092		98,198		—		98,198
Provision (recapture) for credit losses	6,588		—		(264)		6,324		—		6,324
Non-interest income	22,873		7,531		9		30,413		—		30,413
Non-interest expenses	(73,874)		(2,829)		(963)		(77,666)		—		(77,666)
Intersegment revenue	553		—		—		553		(553)		—
Intersegment expenses	—		(291)		(262)		(553)		553		—
Income before income taxes	39,058		4,423		1,140		44,621		—		44,621
Income tax expense	14,236		—		12		14,248		—		14,248
Net income	$	24,822	$	4,423	$	1,128	$	30,373	$	—	$	30,373
Total assets	$	8,312,367	$	28,505	$	2,849,709	$	11,190,581	$	(1,037,239)	$	10,153,342

Comparison of quarters ended March 31, 2022 and 2021

Banking

OFG’s banking segment net income before taxes increased by $8.3 million from $39.1 million to $47.4 million, mainly reflecting:

•Lower interest expense by $4.6 million from both, reduced costs and lower average balances of core deposits;

•Decrease in provision for credit losses by $4.9 million. The provision for credit losses for the first quarter of 2021 included a $3.5 million provision for a commercial loan in workout prior to the pandemic; and

•An increase of $677 thousand in non-interest income, mainly from a $1.1 million increase in banking service revenues on servicing and other loan fees, electronic banking fees, credit life commissions, checking accounts, and international fees; $209 thousand increase in mortgage-banking activities due to lower losses on repurchased loans and other mortgage banking activities, partially offset by lower gains on loans sold due to a decrease in sales; and a $592 thousand decrease in other non-interest income, primarily related to the effect in prior year quarter of receivable recoveries previously written-off.

The net income before taxes was partially offset by an increase in non-interest expenses by $2.0 million, mainly due to a one-time $1.3 million pandemic employee tax credit in the prior year quarter, $1.5 million higher salary expenses associated with an increase in minimum hourly wages during the third quarter of 2021 and annual salary increase during the current quarter. These increases were offset by a $825 thousand decrease in commissions and incentives mainly due to a change in payout structure.

Wealth Management

Wealth management segment revenue consists of commissions and fees from fiduciary activities, and securities brokerage and insurance activities. Net income before taxes from this segment decreased by $1.3 million due to higher non-interest expense by $1.8 million, mainly reflecting higher claims and settlements by $873 thousand due to the reversal of $1.2 million reserve in the prior year quarter as a result of a claim settled in favor of OFG, higher consulting and advisory expenses by $245 thousand and higher compensation and employee benefits by $201 thousand. This decrease was partially offset by an increase in non-interest income of $475 thousand, mainly due to new reinsurance business income of $803 thousand and lower broker-dealer revenues by $235 thousand.

Treasury

Treasury segment net income before taxes increased by $2.5 million, mainly reflecting:

•An increase in interest income by $1.7 million related to the purchases of available-for-sale and held-to-maturity mortgage backed securities during 2022 and 2021; and

•Lower interest expense by $419 thousand, reflecting the cancellation of $33.1 million of FHLB advances during 2021 and reduced costs and lower average balances of brokered deposits.

ANALYSIS OF FINANCIAL CONDITION

Assets Owned

At March 31, 2022, OFG’s total assets amounted to $10.190 billion, for an increase of $290.4 million, when compared to $9.900 billion at December 31, 2021.

The investment portfolio increased by $362.9 million, or 40.5%, primarily related to the purchase of agency mortgage-backed securities during the first quarter of 2022 amounting to $398.9 million. OFG’s strategy is to invest its liquidity in mortgage-backed securities and designate them as available for sale or held-to-maturity after taking into account the bond’s characteristics with respect to yield and term and the current market environment.

OFG’s loan portfolio is comprised of residential mortgage loans, commercial loans secured by real estate, other commercial and industrial loans, consumer loans, and auto loans and leases. At March 31, 2022, OFG’s net loan portfolio increased by $119.8 million, or 1.9%, reflecting increases in commercial, consumer and auto loans, offset by a decrease in mortgage loans, SBA PPP loans forgiven during the quarter of $33.2 million and the sale of $21.9 million of past due mortgage loans held for sale.

Cash and due from banks of $1.850 billion decreased by $164.6 million, reflecting cash used to purchase agency mortgage-backed securities, disbursements for loans originated during the quarter, and the redemption of $36.1 million in 3.23% variable rate subordinated notes, partially offset by an increase in commercial and government-related deposits.

Financial Assets Managed

OFG’s financial assets include those managed by OFG’s trust division, retirement plan administration subsidiary, and assets gathered by its broker-dealer and insurance 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, while the retirement plan administration subsidiary manages private retirement plans. At March 31, 2022, the total assets managed by OFG’s trust division and retirement plan administration subsidiary amounted to $3.608 billion, compared to $3.759 billion at December 31, 2021. OFG’s broker-dealer subsidiary offers a wide array of investment alternatives to its client base, such as tax-advantaged fixed income securities, mutual funds, stocks, bonds and money management wrap-fee programs. At March 31, 2022, total assets gathered by the broker-dealer and insurance agency subsidiaries from their customers’ investment accounts amounted to $2.312 billion, compared to $2.466 billion at December 31, 2021. Changes in trust and broker-dealer related assets primarily reflect changes in portfolio balances and differences in market values.

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. OFG completes its annual goodwill impairment test as of October 31 of each year. OFG tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill.

As of March 31, 2022 and December 31, 2021, OFG had $86.1 million of goodwill allocated as follows: $84.1 million to the banking segment and $2.0 million to the wealth management segment. Please refer to Note 9 – Goodwill and Other Intangible Assets to our consolidated financial statements for more information on the annual goodwill impairment test.

TABLE 4 - ASSETS SUMMARY AND COMPOSITION

	March 31,			December 31,			Variance<br>%
	2022			2021
	(In thousands)
Investments:
FNMA and FHLMC certificates	$	918,696		$	550,809		66.8	%
Obligations of US government-sponsored agencies	—			1,183			-100.0	%
US Treasury securities	10,763			10,825			-0.6	%
CMOs issued by US government-sponsored agencies	21,105			24,430			-13.6	%
GNMA certificates	287,196			288,578			-0.5	%
Equity securities	18,556			17,578			5.6	%
Other debt securities	2,384			2,395			-0.5	%
Trading securities	18			20			-10.0	%
Total investments	1,258,718			895,818			40.5	%
Loans, net	6,449,130			6,329,311			1.9	%
Total investments and loans	7,707,848			7,225,129			6.7	%
Other assets:
Cash and due from banks (including restricted cash)	1,850,081			2,014,698			-8.2	%
Money market investments	5,648			8,952			-36.9	%
Foreclosed real estate	15,297			15,039			1.7	%
Accrued interest receivable	56,097			56,560			-0.8	%
Deferred tax asset, net	87,608			99,063			-11.6	%
Premises and equipment, net	97,403			92,124			5.7	%
Servicing assets	49,446			48,973			1.0	%
Goodwill	86,069			86,069			0.0	%
Right of use assets	28,576			28,846			-0.9	%
Core deposit, customer relationship and other intangibles	33,947			36,093			-5.9	%
Other assets and customers' liability on acceptances	172,100			188,174			-8.5	%
Total other assets	2,482,272			2,674,591			-7.2	%
Total assets	$	10,190,120		$	9,899,720		2.9	%
Investment portfolio composition:
FNMA and FHLMC certificates	73.0		%	61.5		%
Obligations of US government-sponsored agencies	0.0		%	0.1		%
US Treasury securities	0.9		%	1.2		%
CMOs issued by US government-sponsored agencies	1.7		%	2.7		%
GNMA certificates	22.8		%	32.2		%
Equity securities	1.5		%	2.0		%
Other debt securities and trading securities	0.1		%	0.3		%
	100.0		%	100.0		%

TABLE 5 - LOAN PORTFOLIO COMPOSITION

	March 31,		December 31,		Variance<br>%
	2022		2021
	(In thousands)
Loans held for investment:
Commercial	$	2,499,914	$	2,379,330	5.1	%
Mortgage	1,848,641		1,907,271		(3.1)	%
Consumer	455,792		409,675		11.3	%
Auto and leasing	1,743,624		1,706,310		2.2	%
	6,547,971		6,402,586		2.3	%
Allowance for credit losses	(157,075)		(155,937)		0.7	%
Total loans held for investment	6,390,896		6,246,649		2.3	%
Mortgage loans held for sale	26,761		51,096		(47.6)	%
Other loans held for sale	31,473		31,566		(0.3)	%
Total loans, net	$	6,449,130	$	6,329,311	1.9	%

OFG’s loan portfolio is composed of mortgage, commercial, consumer, and auto loans. As shown in Table 5 above, total loans, net, amounted to $6.449 billion at March 31, 2022 and $6.329 billion at December 31, 2021. OFG’s loans held-for-investment portfolio composition and trends were as follows:

•Commercial loan portfolio amounted to $2.500 billion (38.2% of the gross loan portfolio) compared to $2.379 billion (37.2% of the gross loan portfolio) at December 31, 2021.

Commercial production, excluding PPP loans, increased 120.7%, or $155.3 million from $128.7 million in prior year quarter to $283.9 million in the quarter ended March 31, 2022. During the first quarter of 2021, OFG originated $126.3 million of PPP loans. There were no originations of PPP loans during the quarter ended March 31, 2022, as the program concluded in 2021.

•Mortgage loan portfolio amounted to $1.849 billion (28.2% of the gross loan portfolio) compared to $1.907 billion (29.8% of the gross originated loan portfolio) at December 31, 2021.

Mortgage loan production totaled $63.9 million for the quarter ended March 31, 2022 which represents a decrease of 33.4% from $95.9 million in prior year quarter. Mortgage loans included delinquent loans in the GNMA buy-back option program amounting to $9.7 million and $14.5 million at March 31, 2022 and December 31, 2021, respectively. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

•Consumer loan portfolio amounted to $455.8 million (7.0% of the gross loan portfolio) compared to $409.7 million (6.4% of the gross loan portfolio) at December 31, 2021. Consumer loan production increased 253.2% to $97.1 million in the quarter ended March 31, 2022 from $27.5 million in the prior year quarter.

•Auto and leasing portfolio amounted to $1.744 billion (26.6% of the gross loan portfolio) compared to $1.706 billion (26.7% of the gross originated loan portfolio) at December 31, 2021. Auto loans production increased 19.4% to $178.3 million in the quarter ended March 31, 2022 compared to $149.3 million in the prior year quarter.

TABLE 6 - PUERTO RICO GOVERNMENT RELATED LOANS AND SECURITIES

March 31, 2022
			Maturity
	Carrying Value			1 to 3 Years		More than 3 Years
Loans:	(In thousands)
Municipalities	$	86,089		$	35,020	$	51,069

At March 31, 2022, OFG has $86.1 million of direct credit exposure to the Puerto Rico government, a $1.2 million decrease from December 31, 2021.

Credit Risk Management

Allowance for Credit Losses

On January 1, 2020, OFG adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of future expected credit losses inherent in OFG’s relevant financial assets.

Tables 7 through 9 set forth an analysis of activity in the allowance for credit losses and present selected credit loss statistics for the quarters ended March 31, 2022 and 2021 and as of March 31, 2022 and December 31, 2021. In addition, Table 5 sets forth the composition of the loan portfolio.

Please refer to the "Provision for Credit Losses" and "Critical Accounting Estimates" sections in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and Note 7 – Allowance for Credit Losses of this report for a more detailed analysis of provisions and allowance for credit losses.

Non-performing Assets

OFG’s non-performing assets include non-performing loans and foreclosed real estate (see Tables 10 and 12). At March 31, 2022, OFG had $86.8 million of non-accrual loans, including $11.2 million PCD loans, compared to $101.9 million at December 31, 2021.

At March 31, 2022 and December 31, 2021, loans whose terms have been extended and which were classified as troubled-debt restructurings that were not included in non-accrual loans amounted to $123.4 million and $125.9 million, respectively, as they were performing under their new terms.

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans.

At March 31, 2022, OFG’s non-performing assets decreased by 10.6% to $115.3 million (1.13% of total assets) from $129.0 million (1.30% of total assets) at December 31, 2021. Foreclosed real estate and other repossessed assets amounting to $15.3 million and $2.6 million, respectively, at March 31, 2022, increased from $15.0 million and $1.9 million, respectively, at December 31, 2021, recorded at fair value. OFG does not expect non-performing loans to result in significantly higher losses. At March 31, 2022, the allowance coverage ratio to non-performing loans was 161.3% (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. 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. The difference between the unpaid principal balance of the pool and the new amortized cost basis is the non-credit premium or discount which will be amortized interest income over the remaining life of the pool. On a quarterly basis, management will monitor the composition and behavior of the pools to assess the ability for cash flow estimation and timing. If based on the analysis performed the pool is classified as non-accrual, the accretion/amortization of the non-credit (discount) premium will cease.

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. Furthermore, OFG has never been active in negative amortization loans or adjustable rate mortgage loans, including those with teaser rates.

The following items comprise non-performing loans held for investment, including Non-PCD and PCDs:

Commercial loans - At March 31, 2022, OFG’s non-performing commercial loans amounted to $45.8 million (47.0% of OFG’s non-performing loans), an 8.7% decrease from $50.1 million at December 31, 2021 (44.8% of OFG’s non-

performing loans). Non-PCD commercial loans are placed on non-accrual status when they become 90 days or more past due and are written down, if necessary, based on the specific evaluation of the underlying collateral, if any.

Mortgage loans - At March 31, 2022, OFG’s non-performing mortgage loans totaled $37.1 million (38.1% of OFG’s non-performing loans), a 6.7% decrease from $39.7 million (35.5% of OFG’s non-performing loans) at December 31, 2021. 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.

Consumer loans - At March 31, 2022, OFG’s non-performing consumer loans amounted to $2.0 million (2.1% of OFG’s non-performing loans), an 11.9% decrease from $2.3 million at December 31, 2021 (2.1% of OFG’s non-performing loans). 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.

Auto and leasing loans - At March 31, 2022, OFG’s non-performing auto and leasing loans amounted to $12.5 million (12.8% of OFG’s total non-performing loans), a decrease of 37.0% from $19.8 million at December 31, 2021 (17.6% of OFG’s total non-performing loans). Non-PCD auto and leasing 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. Both programs are intended to help responsible homeowners to remain in their homes and avoid foreclosure, while also reducing OFG’s losses on non-performing mortgage loans.

The Loss Mitigation Program helps mortgage borrowers who are or will become financially unable to meet the current or scheduled mortgage payments. Loans that qualify under this program are those guaranteed by FHA, VA, RURAL, PRHFA, conventional loans guaranteed by Mortgage Guaranty Insurance Corporation (MGIC), conventional loans sold to FNMA and FHLMC, and conventional loans retained by OFG. The program offers diversified alternatives such as regular or reduced payment plans, payment moratorium, mortgage loan modification, partial claims (only FHA), short sale, and deed in lieu of foreclosure.

The Non-Conforming Mortgage Loan Program is for non-conforming mortgages, including balloon payment, interest only/interest first, variable interest rate, adjustable interest rate and other qualified loans. Non-conforming mortgage loan portfolios are segregated into the following categories: performing loans that meet secondary market requirement and are refinanced under the credit underwriting guidelines of FHA/VA/FNMA/ FHLMC, and performing loans not meeting secondary market guidelines processed pursuant OFG’s current credit and underwriting guidelines. OFG achieved an affordable and sustainable monthly payment by taking specific, sequential, and necessary steps such as reducing the interest rate, extending the loan term, capitalizing arrearages, deferring the payment of principal or, if the borrower qualifies, refinancing the loan.

In order to apply for any of 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. Loans in these programs are evaluated by designated underwriters for troubled-debt restructuring classification if OFG grants a concession for legal or economic reasons due to the debtor’s financial difficulties.

TABLE 7 - ALLOWANCE FOR CREDIT LOSSES BREAKDOWN

	March 31,			December 31,			Variance<br>%
	2022			2021
	(In thousands)
Allowance for credit losses:
Non-PCD
Commercial	$	37,097		$	32,262		15.0	%
Mortgage	14,952			15,299			-2.3	%
Consumer	21,100			19,141			10.2	%
Auto and leasing	64,195			65,363			-1.8	%
Total allowance for credit losses	$	137,344		$	132,065		4.0	%
PCD
Commercial	$	3,622		$	4,508		-19.7	%
Mortgage	15,881			19,018			-16.5	%
Consumer	31			34			-8.8	%
Auto and leasing	197			312			-36.9	%
Total allowance for credit losses	$	19,731		$	23,872		-17.3	%
Allowance for credit losses summary
Commercial	$	40,719		$	36,770		10.7	%
Mortgage	30,833			34,317			-10.2	%
Consumer	21,131			19,175			10.2	%
Auto and leasing	64,392			65,675			-2.0	%
Total allowance for credit losses	$	157,075		$	155,937		0.7	%
Allowance composition:
Commercial	25.9		%	23.6		%
Mortgage	19.6		%	22.0		%
Consumer	13.5		%	12.3		%
Auto and leasing	41.0		%	42.1		%
	100.0		%	100.0		%
Allowance coverage ratio at end of year:
Commercial	1.6		%	1.6		%	5.2	%
Mortgage	1.7		%	1.8		%	-7.2	%
Consumer	4.6		%	4.7		%	-0.9	%
Auto and leasing	3.7		%	3.9		%	-4.2	%
	2.4		%	2.4		%	-1.6	%
Allowance coverage ratio to non-performing loans:
Commercial	89.0		%	73.3		%	21.3	%
Mortgage	83.1		%	86.4		%	-3.8	%
Consumer	1040.9		%	832.6		%	25.0	%
Auto and leasing	515.3		%	331.2		%	55.6	%
	161.3		%	139.2		%	15.9	%

TABLE 8 - ALLOWANCE FOR CREDIT LOSSES SUMMARY

	Quarter Ended March 31,
		2022		2021		Variance %
		(Dollars in thousands)
Allowance for credit losses:
Balance at beginning of period		$	155,937	$	204,809	-23.9	%
Provision for credit losses		1,715		6,269		-72.6	%
Charge-offs		(12,417)		(17,518)		-29.1	%
Recoveries		11,840		8,413		40.7	%
Balance at end of period		$	157,075	$	201,973	-22.2	%

TABLE 9 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES

	Quarter Ended March 31,
	2022		2021		Variance %
	(Dollars in thousands)
Non-PCD
Mortgage
Charge-offs	$	(3)	$	(787)	-99.6	%
Recoveries	2,074		615		237.2	%
Total	2,071		(172)		-1,304.1	%
Commercial
Charge-offs	(544)		(68)		700.0	%
Recoveries	192		430		-55.3	%
Total	(352)		362		-197.2	%
Consumer
Charge-offs	(2,659)		(4,469)		-40.5	%
Recoveries	655		565		15.9	%
Total	(2,004)		(3,904)		-48.7	%
Auto and leasing
Charge-offs	(7,890)		(9,083)		-13.1	%
Recoveries	4,891		5,817		-15.9	%
Total	(2,999)		(3,266)		-8.2	%
PCD Loans:
Mortgage
Charge-offs	$	(1,134)	$	(2,590)	(56.2)	%
Recoveries	845		146		478.8	%
Total	(289)		(2,444)		(88.2)	%
Commercial
Charge-offs	(34)		(43)		(20.9)	%
Recoveries	3,023		436		593.3	%
Total	2,989		393		660.6	%
Consumer
Charge-offs	(39)		(22)		77.3	%
Recoveries	23		21		9.5	%
Total	(16)		(1)		1,500.0	%
Auto and leasing
Charge-offs	(114)		(456)		(75.0)	%
Recoveries	137		383		(64.2)	%
Total	23		(73)		(131.5)	%
Total charge-offs	(12,417)		(17,518)		(29.1)	%
Total recoveries	11,840		8,413		40.7	%
Net credit losses	$	(577)	$	(9,105)	(93.7)	%

TABLE 9 — NET CREDIT LOSSES STATISTICS ON LOAN AND LEASES (CONTINUED)

	Quarter Ended March 31,
	2022			2021			Variance %
	(Dollars in thousands)
Net credit losses to average<br>loans outstanding:
Mortgage	(0.38)		%	0.47		%	-181.06	%
Commercial	(0.43)		%	(0.13)		%	242.9	%
Consumer	1.75		%	3.78		%	-53.7	%
Auto and leasing	0.69		%	0.85		%	-18.5	%
Total	0.04		%	0.55		%	-93.5	%
Recoveries to charge-offs	95.35		%	48.02		%	98.5	%
Average Loans Held for Investment
Mortgage	$	1,885,159		$	2,243,304		-16.0	%
Commercial	2,450,177			2,405,422			1.9	%
Consumer	461,890			413,187			11.8	%
Auto and leasing	1,721,893			1,573,995			9.4	%
Total	$	6,519,119		$	6,635,908		-1.8	%

TABLE 10 — NON-PERFORMING ASSETS

	March 31,			December 31,			Variance<br>%
	2022			2021
	(Dollars in thousands)
Non-performing assets:
Non-PCD
Non-accruing loans
Troubled-Debt Restructuring loans	$	24,420		$	24,539		-0.5	%
Other loans	51,202			64,465			-20.6	%
Accruing loans
Troubled-Debt Restructuring loans	9,832			9,087			8.2	%
Other loans	738			1,038			-28.9	%
Total	$	86,192		$	99,129		-13.1	%
PCD	11,187			12,879			-13.1	%
Total non-performing loans	$	97,379		$	112,008		-13.1	%
Foreclosed real estate	15,297			15,039			1.7	%
Other repossessed assets	2,625			1,945			35.0	%
	$	115,301		$	128,992		-10.6	%
Non-performing assets to total assets	1.13		%	1.30		%	-13.1	%
Non-performing assets to total capital	11.09		%	12.06		%	-8.0	%
	Quarter Ended March 31,
---	---	---	---	---
	2022		2021
	(In thousands)
Interest that would have been recorded in the period if the<br>loans had not been classified as non-accruing loans	$	486	$	797

TABLE 11 - NON-ACCRUAL LOANS

	March 31,			December 31,			Variance<br>%
	2022			2021
	(Dollars in thousands)
Non-accrual loans
Non-PCD
Commercial	$	34,893		$	37,604		-7.2	%
Mortgage	26,204			29,268			-10.5	%
Consumer	2,030			2,303			-11.9	%
Auto and leasing	12,495			19,829			-37.0	%
Total	$	75,622		$	89,004		-15.0	%
PCD
Commercial	$	10,877		$	12,545		-13.3	%
Mortgage	310			334			-7.2	%
Total	$	11,187		$	12,879		-13.1	%
Total non-accrual loans	$	86,809		$	101,883		-14.8	%
Non-accruals loans composition percentages:
Commercial	52.7		%	49.2		%
Mortgage	30.5		%	29.1		%
Consumer	2.3		%	2.3		%
Auto and leasing	14.5		%	19.4		%
	100.0		%	100.0		%
Non-accrual loans ratios:
Non-accrual loans to total loans	1.33		%	1.59		%	-16.35	%
Allowance for credit losses to non-accrual loans	180.94		%	153.05		%	18.22	%

TABLE 12 - NON-PERFORMING LOANS

	March 31,			December 31,			Variance<br>%
	2022			2021
	(Dollars in thousands)
Non-performing loans
Non-PCD
Commercial	$	34,892		$	37,603		-7.2	%
Mortgage	36,775			39,394			-6.6	%
Consumer	2,030			2,303			-11.9	%
Auto and leasing	12,495			19,829			-37.0	%
Total	$	86,192		$	99,129		-13.1	%
PCD
Commercial	$	10,877		$	12,545		-13.3	%
Mortgage	310			334			-7.2	%
Total	$	11,187		$	12,879		-13.1	%
Total non-performing loans	$	97,379		$	112,008		-13.1	%
Non-performing loans composition percentages:
Commercial	47.0		%	44.8		%
Mortgage	38.1		%	35.5		%
Consumer	2.1		%	2.1		%
Auto and leasing	12.8		%	17.6		%
	100.0		%	100.0		%
Non-performing loans to:
Total loans	1.49		%	1.75		%	-14.86	%
Total assets	0.96		%	1.13		%	-15.0	%
Total capital	9.36		%	10.48		%	-10.7	%
Non-performing loans with partial charge-offs to:
Total loans	0.46		%	0.46		%	—	%
Non-performing loans	30.70		%	26.53		%	15.7	%
Other non-performing loans ratios:
Charge-off rate on non-performing loans to non-performing loans on which charge-offs have been taken	96.85		%	170.31		%	-43.1	%
Allowance for credit losses to non-performing loans on which no charge-offs have been taken	232.77		%	189.49		%	22.8	%

TABLE 13 - LIABILITIES SUMMARY AND COMPOSITION

	March 31,			December 31,			Variance<br>%
	2022			2021
	(Dollars in thousands)
Deposits:
Non-interest bearing deposits	$	2,667,508		$	2,501,644		6.6	%
NOW accounts	2,837,072			2,702,636			5.0	%
Savings and money market accounts	2,295,111			2,177,779			5.4	%
Time deposits	1,177,891			1,220,262			-3.5	%
Total deposits	8,977,582			8,602,321			4.4	%
Accrued interest payable	640			797			-19.7	%
Total deposits and accrued interest payable	8,978,222			8,603,118			4.4	%
Borrowings:
Advances from FHLB	28,035			28,488			-1.6	%
Subordinated capital notes	—			36,083			-100.0	%
Total borrowings	28,035			64,571			-56.6	%
Total deposits and borrowings	9,006,257			8,667,689			3.9	%
Other Liabilities:
Derivative liabilities	191			804			-76.2	%
Acceptances outstanding	29,858			35,329			-15.5	%
Lease liability	30,287			30,498			-0.7	%
Other liabilities	83,492			96,240			-13.2	%
Total liabilities	$	9,150,085		$	8,830,560		3.6	%
Deposits portfolio composition percentages:
Non-interest bearing deposits	29.7		%	29.1		%
NOW accounts	31.6		%	31.4		%
Savings and money market accounts	25.6		%	25.3		%
Time deposits	13.1		%	14.2		%
	100.0		%	100.0		%
Borrowings portfolio composition percentages:
Advances from FHLB	100.0		%	44.1		%
Subordinated capital notes	0.0		%	55.9		%
	100.0		%	100.0		%

Liabilities and Funding Sources

As shown in Table 13 above, at March 31, 2022, OFG’s total liabilities were $9.150 billion, 3.6% more than the $8.831 billion reported at December 31, 2021. Deposits and borrowings, OFG’s funding sources, amounted to $9.006 billion at March 31, 2022 compared to $8.668 billion at December 31, 2021. Deposits, excluding accrued interest payable, increased 4.4% mainly from higher commercial and retail deposits by $417.6 million, offset by a decrease of $42.5 million in time deposits from maturities, with the majority of them transferred into demand deposit and savings accounts.

As of March 31, 2022 borrowings consist of FHLB-NY advances amounting to $28.0 million. Borrowings decreased by $36.5 million, when compared to $64.6 million at December 31, 2021, reflecting the redemption during the quarter ended March 31, 2022 of all $36.1 million variable rate subordinated capital notes before maturity.

Stockholders’ Equity

At March 31, 2022, OFG’s total stockholders’ equity was $1.040 billion, a 3% decrease when compared to $1.069 billion at December 31, 2021. This reduction in stockholders’ equity reflects decreases (i) in treasury stock of $30.1 million and additional paid-in capital of $3.3 million, from $33.5 million in repurchases of common stock as part of the $100 million buyback program adopted during the first quarter of 2022; and (ii) in accumulated other comprehensive income, net of tax, of $25.8 million from changes in the market value of available-for-sale securities. The decrease was partially offset by an increase in retained earnings of $26.4 million and legal surplus of $3.7 million, mainly due to $37.5 million in net income, partially offset by $7.4 million common stock dividends issued during the quarter ended March 31, 2022.

Regulatory Capital

OFG and the Bank are subject to regulatory capital requirements established by the Federal Reserve Board and the FDIC. The current risk-based capital standards applicable to OFG and the Bank (“Basel III capital rules”), which have been effective since January 1, 2015, are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. As of March 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, the Company implemented CECL using the modified retrospective approach, with an impact to capital of $25.5 million, net of its corresponding deferred tax effect. On March 27, 2020, in response to the Covid-19 pandemic, U.S. banking regulators issued an interim final rule that the Company adopted to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2020 and 2021 (i.e., a five-year transition period). 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). 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.

During the quarter ended March 31, 2022, OFG redeemed all of its $36.1 million subordinated capital notes and, as a result, OFG's tier 1 capital was reduced by the corresponding $35.0 million qualified trust preferred securities, which were previously included in tier 1 capital.

The risk-based capital ratios presented in Table 14, which include common equity tier 1, tier 1 capital, total capital and leverage capital as of March 31, 2022 and December 31, 2021, are calculated based on the Basel III capital rules related to the measurement of capital, risk-weighted assets and average assets.

The following are OFG’s consolidated capital ratios under the Basel III capital rules at March 31, 2022 and December 31, 2021:

TABLE 14 — CAPITAL, DIVIDENDS AND STOCK DATA

	March 31,			December 31,			Variance
	2022			2021			%
	(Dollars in thousands, except per share data)
Capital data:
Stockholders’ equity	$	1,040,035		$	1,069,160		(2.7)	%
Regulatory Capital Ratios data:
Common equity tier 1 capital ratio	13.24		%	13.77		%	(3.8)	%
Minimum common equity tier 1 capital ratio required	4.50		%	4.50		%	0.0	%
Actual common equity tier 1 capital	$	955,221		964,284			(0.9)	%
Minimum common equity tier 1 capital required	$	324,661		315,219			3.0	%
Minimum capital conservation buffer required (2.5%)	$	180,367		175,122			3.0	%
Excess over regulatory requirement	$	450,193		473,943			(5.0)	%
Risk-weighted assets	$	7,214,692		7,004,876			3.0	%
Tier 1 risk-based capital ratio	13.24		%	14.27		%	(7.2)	%
Minimum tier 1 risk-based capital ratio required	6.00		%	6.00		%	0.0	%
Actual tier 1 risk-based capital	$	955,221		$	999,284		(4.4)	%
Minimum tier 1 risk-based capital required	$	432,882		$	420,293		3.0	%
Minimum capital conservation buffer required (2.5%)	$	180,367		175,122			3.0	%
Excess over regulatory requirement	$	341,972		$	403,869		(15.3)	%
Risk-weighted assets	$	7,214,692		$	7,004,876		3.0	%
Total risk-based capital ratio	14.49		%	15.52		%	(6.6)	%
Minimum total risk-based capital ratio required	8.00		%	8.00		%	0.0	%
Actual total risk-based capital	$	1,045,437		$	1,086,897		(3.8)	%
Minimum total risk-based capital required	$	577,175		$	560,390		3.0	%
Minimum capital conservation buffer required (2.5%)	$	180,367		175,122			3.0	%
Excess over regulatory requirement	$	287,894		$	351,385		(18.1)	%
Risk-weighted assets	$	7,214,692		$	7,004,876		3.0	%
Leverage capital ratio	9.54		%	9.69		%	(1.5)	%
Minimum leverage capital ratio required	4.00		%	4.00		%	0.0	%
Actual tier 1 capital	$	955,221		$	999,284		(4.4)	%
Minimum tier 1 capital required	$	400,333		$	412,359		(2.9)	%
Excess over regulatory requirement	$	554,888		$	586,925		(5.5)	%
Tangible common equity to total assets	9.03		%	9.57		%	(5.6)	%
Tangible common equity to risk-weighted assets	12.75		%	13.52		%	(5.7)	%
Total equity to total assets	10.21		%	10.80		%	-5.5	%
Total equity to risk-weighted assets	14.42		%	15.26		%	(5.5)	%
Stock data:
Outstanding common shares	48,673,113			49,636,352			(1.9)	%
Book value per common share	$	21.37		$	21.54		(0.8)	%
Tangible book value per common share	$	18.90		$	19.08		(0.9)	%
Market price at end of year	$	26.64		$	26.56		0.3	%
Market capitalization at end of year	$	1,296,652		$	1,318,342		-1.6	%

From December 31, 2021 to March 31, 2022, tangible common equity to tangible total assets decreased from 9.69% to 9.14%, leverage capital ratio decreased from 9.69% to 9.54%, tier 1 risk-based capital ratio decreased from 14.27% to 13.24%, total risk-based capital ratio decreased from 15.52% to 14.49% and common equity tier 1 capital ratio decreased from 13.77% to 13.24%. The decreases in capital ratios were mainly due to common stock repurchases of $33.5 million, dividends of $7.4 million issued, and lower CECL transition provision by $6.9 million from the expiration of the Covid-19 deferral period, partially offset by net income for the quarter. Also, during the quarter ended March 31, 2022, OFG completed the redemption and cancellation of subordinated capital notes, further reducing tier 1 capital and total risk based capital by $35.0 million.

The following table presents a reconciliation of OFG’s total stockholders’ equity to tangible common equity and total assets to tangible assets at March 31, 2022 and December 31, 2021:

	March 31,			December 31,
	2022			2021
	(In thousands, except share or per share information)
Total stockholders' equity	$	1,040,035		$	1,069,160
Goodwill	(86,069)			$	(86,069)
Core deposit intangible	(25,992)			$	(27,630)
Customer relationship intangible	(7,884)			$	(8,368)
Other intangibles	(71)			$	(95)
Total tangible common equity (non-GAAP)	$	920,019		$	946,998
Total assets	$	10,190,120		9,899,720
Goodwill	(86,069)			(86,069)
Core deposit intangible	(25,992)			(27,630)
Customer relationship intangible	(7,884)			(8,368)
Other intangibles	(71)			(95)
Total tangible assets	$	10,070,104		$	9,777,558
Tangible common equity to tangible assets	9.14		%	9.69		%
Common shares outstanding at end of period	48,673,113			49,636,352
Tangible book value per common share	$	18.90		$	19.08

The tangible common equity ratio and tangible book value per common share are non-GAAP measures and, unlike tier 1 capital and common equity tier 1 capital, are not codified in the federal banking regulations. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations. Neither tangible common equity nor tangible assets or related measures should be considered in isolation or as a substitute for stockholders’ equity, total assets or any other measure calculated in accordance with GAAP. Moreover, the manner in which 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. To mitigate these limitations, OFG has procedures in place to calculate these measures using the appropriate GAAP or regulatory components. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

The following table presents OFG’s capital adequacy information under the Basel III capital rules:

	March 31,			December 31,			Variance
	2022			2021			%
	(Dollars in thousands)
Risk-based capital:
Common equity tier 1 capital	$	955,221		$	964,284		(0.9)	%
Additional tier 1 capital	—			35,000			(100.0)	%
Tier 1 capital	955,221			999,284			(4.4)	%
Additional Tier 2 capital	90,216			87,613			3.0	%
Total risk-based capital	$	1,045,437		$	1,086,897		(3.8)	%
Risk-weighted assets:
Balance sheet items	$	6,630,593		$	6,406,115		3.5	%
Off-balance sheet items	584,099			598,761			(2.4)	%
Total risk-weighted assets	$	7,214,692		$	7,004,876		3.0	%
Ratios:
Common equity tier 1 capital (minimum required, including capital conservation buffer - 7%)	13.24		%	13.77		%	(3.8)	%
Tier 1 capital (minimum required, including capital conservation buffer - 8.5%)	13.24		%	14.27		%	(7.2)	%
Total capital (minimum required, including capital conservation buffer - 10.5%)	14.49		%	15.52		%	(6.6)	%
Leverage ratio (minimum required - 4%)	9.54		%	9.69		%	(1.5)	%
Equity to assets	10.21		%	10.80		%	-5.5	%
Tangible common equity to assets	9.03		%	9.57		%	(5.6)	%

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 March 31, 2022 and December 31, 2021:

	March 31,		December 31,		Variance
	2022		2021		%
	(Dollars in thousands)
Oriental Bank Regulatory Capital Ratios:
Common Equity Tier 1 Capital to Risk-Weighted Assets	12.68%		13.09%		(3.13)	%
Actual common equity tier 1 capital	$	910,777	$	908,717	0.2	%
Minimum capital requirement (4.5%)	$	323,197	$	312,371	3.5	%
Minimum capital conservation buffer requirement (2.5%)	$	179,554	$	173,540	3.5	%
Minimum to be well capitalized (6.5%)	$	466,840	$	451,203	3.5	%
Tier 1 Capital to Risk-Weighted Assets	12.68%		13.09%		(3.1)	%
Actual tier 1 risk-based capital	$	910,777	$	908,717	0.2	%
Minimum capital requirement (6%)	$	430,930	$	416,495	3.5	%
Minimum capital conservation buffer requirement (2.5%)	$	179,554	$	173,540	3.5	%
Minimum to be well capitalized (8%)	$	574,573	$	555,327	3.5	%
Total Capital to Risk-Weighted Assets	13.93%		14.34%		(2.9)	%
Actual total risk-based capital	$	1,000,591	$	995,549	0.5	%
Minimum capital requirement (8%)	$	574,573	$	555,327	3.5	%
Minimum capital conservation buffer requirement (2.5%)	$	179,554	$	173,540	3.5	%
Minimum to be well capitalized (10%)	$	718,216	$	694,159	3.5	%
Total Tier 1 Capital to Average Total Assets	9.17%		8.87%		3.4	%
Actual tier 1 capital	$	910,777	$	908,717	0.2	%
Minimum capital requirement (4%)	$	397,348	$	409,855	(3.1)	%
Minimum to be well capitalized (5%)	$	496,685	$	512,319	(3.1)	%

OFG’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “OFG.” At March 31, 2022 and December 31, 2021, OFG’s market capitalization for its outstanding common stock was $1.297 billion ($26.64 per share) and $1.318 billion ($26.56 per share), respectively.

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
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, the Company announced the approval by the Board of Directors of a new stock repurchase program to purchase an additional $100 million of the Company’s common stock in the open market, in effect at March 31, 2022. The shares of common stock repurchased are to be held by OFG as treasury shares. During the quarter ended March 31, 2022, OFG repurchased 1,219,132 shares under this program for a total of $33.5 million, at an average price of $27.46 per share. OFG did not repurchase any shares of its common stock in the quarter ended March 31, 2022, other than through its publicly announced stock repurchase program. There were no stock repurchases by OFG during the quarter ended March 31, 2021.

At March 31, 2022, the number of shares that may yet be purchased under such program is estimated at 2,497,051 and was calculated by dividing the remaining balance of $66.5 million by $26.64 (closing price of OFG's common stock at March 31, 2022).

Impact of Inflation and Changing Prices

The financial statements and related data presented herein (except for certain non-GAAP measures as previously indicated) have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or with the same magnitude as the prices of goods and services since such prices are affected by inflation.

ITEM 3. 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”). OFG has continued to refine and enhance its risk management program by strengthening policies, processes and procedures necessary to maintain effective risk management.

All aspects of OFG’s business activities are susceptible to risk. Consequently, risk identification and monitoring are essential to risk management. 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. OFG’s financial results and capital levels are constantly exposed to market risk. The Board and management are primarily responsible for ensuring that the market risk assumed by OFG complies with the guidelines established by policies approved by the Board. The Board has delegated the management of this risk to the ALT which is composed of certain executive officers from the business, 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.

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. 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.

On a quarterly basis, OFG performs net interest income simulation analysis on a consolidated basis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a five-year time

horizon, assuming certain upward and downward interest rate movements, achieved during a twelve-month period. Market scenarios that include instantaneous and parallel interest rate movements as well as other scenarios with gradual interest rate ramps, speed of interest rate changes, and changes in the slope of the yield curve are also modeled. In addition to the change in interest rates, the results of the analysis could be affected by prepayments, caps, and floors. Management exercises its best judgment in formulating assumptions regarding events that management can influence such as non-maturity deposits repricing, as well as events outside management’s control such as customer behavior on loans and deposits activity and the effects that competition has on both lending and deposits pricing. 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. 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 March 31, 2022. The left of the table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and parallel shift in the yield curve over a 12-month horizon. The base case scenario assumes that the current interest rate environment is held constant throughout the forecast period for a static balance sheet and the instantaneous shocks are performed against that yield curve. The right side of the table, presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from parallel gradual interest rates ramps over a 12-month horizon.

	Net Interest Income Risk (one-year projection)
	Instantaneous Changes in Interest Rates				Gradual Changes in Interest Rates
	Amount<br>Change		Percent<br>Change		Amount<br>Change		Percent<br>Change
Change in interest rate	(Dollars in thousands)
+ 50 Basis points	$	15,445	3.55	%	$	7,651	1.76	%
+ 100 Basis points	$	30,797	7.08	%	$	15,231	3.50	%
+ 200 Basis points	$	61,950	14.25	%	$	30,498	7.02	%
- 50 Basis points	$	(12,245)	-2.82	%	$	(6,841)	-1.57	%

The scenarios above are both instantaneous shocks and gradual interest rate ramps that assume balance sheet management will mirror the base case. 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. OFG strategic management of the balance sheet would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. 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. Also, the ability of many borrowers to service their debt 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.

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-NY in which it may enter into from time to time. As part of the strategy to limit the interest rate risk and reduce the re-pricing gaps of 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 advances from the FHLB-NY still outstanding as of March 31, 2022.

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. 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. 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. 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. 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.

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. 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. 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.

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-NY that are tied to a variable rate index. The interest rate swaps effectively fix OFG’s interest payments on these borrowings. As of March 31, 2022, OFG had $28.0 million in interest rate swaps at an average rate of 2.42% designated as cash flow hedges for $28.0 million in advances from the FHLB-NY that reprice or are being rolled over on a monthly basis. A derivative liability of $191 thousand was recognized at March 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. In Puerto Rico, OFG’s principal market, recent macroeconomic conditions continue to show strength, however, as was demonstrated by 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. The effects of climate change may further increase the risk of natural disasters in the future and the correlative risk that the physical impact of such events could adversely affect our customers, operations, and business. Moreover, the Puerto Rico government’s fiscal challenges and Puerto Rico’s unique relationship with the United States also complicate any relief efforts after a natural disaster. These events increase credit risk as debtors may no longer be capable of operating their businesses and the collateral securing OFG’s loans may suffer significant damages.

OFG manages its credit risk through a comprehensive credit policy which we believe establishes sound underwriting standards by monitoring and evaluating loan portfolio quality, and by the constant assessment of reserves and loan concentrations. OFG also employs proactive collection and loss mitigation practices.

OFG may also encounter risk of default in relation to its securities portfolio. The securities held by OFG are mostly agency mortgage-backed securities. Thus, these instruments are guaranteed by mortgages, a U.S. government-sponsored entity, or the full faith and credit of the U.S. government.

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.

Liquidity Risk

Liquidity risk is the risk of OFG not being able to generate sufficient cash from either assets or liabilities to meet obligations as they become due without incurring substantial losses. The Board has established a policy to manage this risk. 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. While OFG is able to fund its operations through deposits as well as through advances from the FHLB-NY 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. As of March 31, 2022, OFG had $11.4 million in brokered deposits.

Brokered deposits are typically offered through an intermediary to small retail investors. 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. 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. As a result of the increase in core deposits, OFG has been limiting the offering of brokered deposits.

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. 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. Loan commitments, which represent unused lines of credit, decreased to $1.350 billion at March 31, 2022 ($290.7 million with maturity of one year or less and $1.059 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), while letters of credit provided to customers increased to $29.4 million compared to $25.2 million at December 31, 2021. Loans sold with recourse at March 31, 2022 and December 31, 2021 amounted to $118.7 million and $121.8 million, respectively.

In the case of loans serviced by OFG for FNMA, OFG is required to advance to the owners the payment of principal and interest on a scheduled basis for six months even when such payment was not collected from the borrower due to payment forbearance granted or payment delinquency. 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 March 31, 2022 and December 31, 2021, OFG maintained other non-credit commitments amounting to $23.0 million and $8.9 million, respectively, primarily for the acquisition of other investments. 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. 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 March 31, 2022 and December 31, 2021, OFG had commitments for capital expenditures in technology amounting to $13.9 million and $15.4 million, respectively, which are expected to be satisfied with OFG’s unrestricted cash.

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, with only 0.2% of total loans remaining at March 31, 2022 compared to 30% at June 30, 2020. Even though OFG’s liquidity was impacted by loan principal and interest payment deferrals that were granted for certain customers due to Covid-19, liquidity has been growing from the federal stimulus programs Puerto Rico is receiving following 2017’s Hurricane Maria, the early 2020 earthquakes, and the Covid-19 pandemic. However, liquidity can be further affected by a number of factors such as, counterparty willingness or ability to extend credit, regulatory actions and customer preferences, some of which are beyond our control. With the current economic uncertainty resulting from the Covid-19 pandemic, inflation and the war in Ukraine, we continue monitoring our liquidity position, specifically cash on hand to meet customer demands.

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. In a period of financial disruption or if negative developments occur with respect to OFG, the availability and cost of OFG’s funding sources could be adversely affected. In that event, OFG’s cost of funds may increase, thereby reducing its net interest income, or OFG may need to dispose of a portion of its investment portfolio, which depending upon market conditions, could result in realizing a loss or experiencing other adverse accounting consequences upon any such dispositions. 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. 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.

As of March 31, 2022, OFG had approximately $1.856 billion in unrestricted cash and cash equivalents, $1.040 billion in investment securities that are not pledged as collateral, and $664.3 million in borrowing capacity at the FHLB-NY.

Operational Risk

Operational risk is the risk of loss from inadequate or failed internal processes, personnel and systems or from external events. All functions, products and services of 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. Coupled with external influences such as the risk of natural disasters, market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. In order to mitigate and control operational risk, OFG has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these policies and procedures is to provide reasonable assurance that OFG’s business operations are functioning within established limits.

OFG classifies operational risk into two major categories: business specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, legal and compliance, 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. 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 is subject to extensive United States federal and Puerto Rico regulations, and this regulatory scrutiny has been significantly increasing over the last several years. OFG has established and continues to enhance procedures based on legal and regulatory requirements that are reasonably designed to ensure compliance with all applicable statutory and regulatory requirements. 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.

Concentration Risk

Most of OFG’s business activities and a significant portion of its credit exposure are concentrated in Puerto Rico. 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.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

OFG’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of the end of the period covered by this quarterly report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of OFG’s management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of OFG’s disclosure controls and procedures. Based upon such evaluation, the CEO and CFO have concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, OFG’s disclosure controls and procedures provided reasonable assurance of effectiveness in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by OFG in the reports that it files or submits under the Securities Exchange Act of 1934. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within OFG to disclose material information otherwise required to be set forth in OFG’s periodic reports.

Internal Control over Financial Reporting

There have not been any changes in OFG’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2022, that has materially affected, or is reasonably likely to materially affect, OFG’s internal control over financial reporting.

PART - II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

OFG and its subsidiaries are defendants in a number of legal proceedings incidental to their business. OFG is vigorously contesting such claims. Based upon a review by legal counsel and the development of these matters to date, management is of the opinion that the ultimate aggregate liability, if any, resulting from these claims will not have a material adverse effect on OFG’s financial condition or results of operations.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K) describes market, credit, and business operations risk factors that could affect our businesses, results of operations or financial condition. On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible. As these conditions and circumstances have evolved subsequent to our 2021 Form 10-K filing, the following supplements the risk factors described in our 2021 Form 10-K.

Terrorist attacks and threats of war may impact all aspects of our operations, revenues, costs and stock price.

The recent special military actions of the Russian Federation and its invasion of Ukraine and the resulting geopolitical uncertainty are likely to have a significant impact on the European Union, the United Kingdom and other countries, including the U.S. The threat that these military operations may expand beyond Ukraine may have a negative impact as well. Significant increases in the price of oil and natural gas and food have occurred and are likely to continue putting additional inflationary pressures on central banks, including the FRB. It is expected that interest rate hikes already announced by the FRB will continue to occur in 2022, but the amount, timing, and frequency of such increases are not fully known at this time. The Russian Federation has also threatened increased cyberattacks and the possibility of nuclear escalation as part of its recent actions which could affect the Bank and its customers. Additionally, the United States and European nations have imposed very significant financial sanctions on the Russian Republic, including targeted sanctions on Russian banks and wealthy individuals as well as halting certification of the Nord Stream 2 gas pipeline. They have denied Russian banks access the Society for Worldwide Interbank Financial Telecommunications or SWIFT which is expected to slow international trade and make such transactions costlier to accomplish which could also negatively affect OFG and its customers. In response to the Russian military actions, many businesses headquartered in the Eurozone and the United States have stopped doing business with Russia, which may negatively affect the profitability of those companies. The international turmoil has already had and may continue to have a negative impact on the stock market generally and, in turn, on our stock price. The full impact of the recent actions by the Russian Federation regarding Ukraine are not known at this time, but they could result in economic disruption, heightened volatility in financial markets and diminished consumer, business and investor confidence, among others, adversely impacting our business, financial condition, results of operation, and stock price.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In January 2022, the Company announced the approval by the Board of Directors of a new stock repurchase program to purchase an additional $100 million of the Company’s common stock in the open market. Any shares of common stock repurchased are held by the Company as treasury shares. The Company records treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. During the quarter ended March 31, 2022, the Company purchased 1,219,132 shares under this program for a total of $33.5 million, at an average price of $27.46 per share.

The table below sets forth the information with respect to purchases of our common stock made by or on behalf of us during the quarter ended March 31, 2022:

Period	Total number of<br>shares purchased	Average price paid<br>per share		Total number of<br>shares purchased<br>as part of publicly<br>announced programs	Maximum approximate<br>dollar value of shares<br>that may yet be purchased<br>under the programs
	(In thousands, except per share data)
1/1/2022 - 1/31/2022	700,000	$	27.52	700,000	$	80,737
2/1/2022 - 2/28/2022	287,548	27.52		287,548	72,825
3/1/2022 - 3/31/2022	231,584	27.22		231,584	66,521
Total	1,219,132	$	27.46	1,219,132	$	66,521

The number of shares that may yet be purchased under the current $100 million program is estimated at 2,497,051 and was calculated by dividing the remaining balance of $66.5 million by $26.64 (closing price of the Company’s common stock at March 31, 2022). The Company did not purchase any shares of its common stock other than through its publicly announced stock repurchase program during quarter ended March 31, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.	Description of Document:
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
101	The following materials from OFG’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Statements of Financial Condition, (ii) Unaudited Consolidated Statements of Operations, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

OFG BANCORP

By:	/s/ José Rafael Fernández	Dated: May 6, 2022
José Rafael Fernández<br>President and Chief Executive Officer
By:	/s/ Maritza Arizmendi Díaz	Dated: May 6, 2022
Maritza Arizmendi Díaz<br>Chief Financial Officer
By:	/s/ Krisen Aguirre Torres	Dated: May 6, 2022
Krisen Aguirre Torres<br>Director, Reporting and Accounting Control

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Document

EXHIBIT 31.1

MANAGEMENT CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, José Rafael Fernández, President and Chief Executive Officer of OFG Bancorp, certify that:

1.I have reviewed this quarterly report on Form 10-Q of OFG Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,process,summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 6, 2022
		By:	/s/ José Rafael Fernández
			José Rafael Fernández
			President and Chief Executive Officer

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EXHIBIT 31.2

MANAGEMENT CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Maritza Arizmendi, Executive Vice President and Chief Financial Officer of OFG Bancorp, certify that:

1.I have reviewed this quarterly report on Form 10-Q of OFG Bancorp;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f ) and 15d-15(f )) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 6, 2022
		By:	/s/ Maritza Arizmendi
			Maritza Arizmendi
			Executive Vice President and Chief Financial Officer

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. §1350)

In connection with OFG Bancorp’s quarterly report on Form 10-Q for the quarter ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, José Rafael Fernández, President and Chief Executive Officer of OFG Bancorp, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of OFG Bancorp.

In witness whereof, I execute this certification in San Juan, Puerto Rico, this 6th day of May 2022.

By:	/s/ José Rafael Fernández
	José Rafael Fernández
	President and Chief Executive Officer

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EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. §1350)

In connection with OFG Bancorp’s quarterly report on Form 10-Q for the period ended March 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Maritza Arizmendi, Executive Vice President and Chief Financial Officer of OFG Bancorp, hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350), that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of OFG Bancorp.

In witness whereof, I execute this certification in San Juan, Puerto Rico, this 6th day of May 2022.

By:	/s/ Maritza Arizmendi
	Maritza Arizmendi
	Executive Vice President and Chief Financial Officer

1