Borrowings

12 Months Ended

Dec. 31, 2017

NOTE 15 — BORROWINGS AND RELATED INTEREST

Securities Sold under Agreements to Repurchase

At December 31, 2017, securities underlying agreements to repurchase were delivered to, and are being held by, the counterparties with whom the repurchase agreements were transacted. The counterparties have agreed to resell to Oriental the same or similar securities at the maturity of these agreements. The purpose of these transactions is to provide financing for Oriental’s securities portfolio.

At December 31, 2017 and 2016, securities sold under agreements to repurchase (classified by counterparty), excluding accrued interest in the amount of $369 thousand and $1.5 million, respectively, were as follows:

	December 31,
	2017				2016
			Fair Value of				Fair Value of
	Borrowing		Underlying		Borrowing		Underlying
	Balance		Collateral		Balance		Collateral
	(In thousands)
PR Cash and Money Market Fund	$	-	$	-	$	70,010	$	74,538
JP Morgan Chase Bank NA		82,500		88,974		350,219		376,674
Credit Suisse Securities (USA) LLC		-		-		232,000		249,286
Federal Home Loan Bank		110,000		116,509		-		-
Total	$	192,500	$	205,483	$	652,229	$	700,498

The following table shows a summary of Oriental’s repurchase agreements and their terms, excluding accrued interest in the amount of $369 thousand, at December 31, 2017:

			Weighted-
	Borrowing		Average		Maturity
Year of Maturity	Balance		Coupon	Settlement Date	Date
	(In thousands)
2018		82,500	1.42%	12/30/2015	4/29/2018

2019		50,000	1.72%	3/2/2017	9/3/2019

2020		60,000	1.85%	3/2/2017	3/2/2020

	$	192,500	1.63%

A repurchase agreement in the original amount of $500 million with an original term of ten years was modified in February 2016 to partially terminate, before maturity, $268.0 million at a cost of $12.0 million included as a loss on early extinguishment of debt in the consolidated statements of operations. The remaining balance of this repurchase agreement of $232.0 million matured on March 2, 2017. In addition, in June 2017, repurchase agreements in the original amounts of $25.0 million and $75.0 million, respectively, with original terms of June 2019 and December 2019, respectively, were terminated before maturity at a cost of $80 thousand included as a loss on early extinguishment of debt in consolidated statement of operations. Also, in December 2017, a repurchase agreement in the original amount of $172.5 million, with an original term of April 2018, was partially terminated, before maturity, by the amount of $80.0 million at no cost

The following table presents the repurchase liability associated with the repurchase agreement transactions (excluding accrued interest) by maturity. Also, it includes the carrying value and approximate market value of collateral (excluding accrued interest) at December 31, 2017 and 2016. There was no cash collateral at December 31, 2017 and 2016.

	December 31, 2017
					Market Value of Underlying Collateral
			Weighted		FNMA and
	Repurchase		Average		FHLMC
	Liability		Rate		Certificates		Total
	(Dollars in thousands)
Over 90 days		192,500		1.63%		205,483		205,483
Total	$	192,500		1.63%	$	205,483	$	205,483

	December 31, 2016
					Market Value of Underlying Collateral

			Weighted		FNMA and					US Treasury
	Repurchase		Average		FHLMC		GNMA			Treasury
	Liability		Rate		Certificates		Certificates			Notes	Total
	(Dollars in thousands)
Less than 90 days	$	349,729	$	3.35%		248,288	$	75,536	$	48,954	$	372,778
Over 90 days		302,500		1.44%		327,627		93		-		327,720
Total	$	652,229		2.47%	$	575,915	$	75,629		48,954		700,498

The following summarizes significant data on securities sold under agreements to repurchase as of December 31, 2017 and 2016, excluding accrued interest:

	December 31,
	2017		2016
	(In thousands)
Average daily aggregate balance outstanding	$	393,133	$	663,845
Maximum outstanding balance at any month-end	$	606,210	$	902,500
Weighted average interest rate during the year		1.80%		2.83%
Weighted average interest rate at year end		1.63%		2.47%

Advances from the Federal Home Loan Bank of New York

Advances are received from the FHLB-NY under an agreement whereby Oriental is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At December 31, 2017 and 2016, these advances were secured by mortgage and commercial loans amounting to $1.3 billion and $1.4 billion, respectively. Also, at December 31, 2017 and 2016, Oriental had an additional borrowing capacity with the FHLB-NY of $920 million and $1.2 billion, respectively. At December 31, 2017 and 2016, the weighted average remaining maturity of FHLB’s advances was 3.2 months and 10.6 months, respectively. The original terms of these advances range between one month and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of December 31, 2017.

The following table shows a summary of these advances and their terms, excluding accrued interest in the amount of $322 thousand, at December 31, 2017

			Weighted-
		Borrowing	Average		Maturity
Year of Maturity		Balance	Coupon	Settlement Date	Date
		(In thousands)
2018		30,000	2.19%	1/16/2013	1/16/2018
		25,000	2.18%	1/16/2013	1/16/2018
		35,113	1.49%	12/1/2017	1/22/2018
		90,113

2020		9,208	2.59%	7/19/2013	7/20/2020
	$	99,321	1.98%

All of the advances referred to above with maturity dates up to the date of this report were renewed as one-month short-term advances.

Subordinated Capital Notes

Subordinated capital notes amounted to $36.1 million at December 31, 2017 and 2016, respectively. On September 29, 2016, Oriental repaid $67.0 million of subordinated capital notes at maturity.

In August 2003, the Statutory Trust II, a special purpose entity of the Company, 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 Oriental. The subordinated deferrable interest debenture has a par value of $36.1 million, bears interest based on 3-month LIBOR plus 295 basis points (4.55% at December, 2017; 3.94.% at December 31, 2016), is payable quarterly, and matures on September 17, 2033. It may be called at par after five years and quarterly thereafter (next call date March 2018). The trust redeemable preferred securities have the same maturity and call provisions as the subordinated deferrable interest debenture. The subordinated deferrable interest debenture issued by Oriental is accounted for as a liability denominated as a subordinated capital note on the consolidated statements of financial condition.

The subordinated capital note is treated as Tier 1 capital for regulatory purposes. Under the Dodd-Frank Act and the new 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 Oriental, with total consolidated assets of less than $15 billion as of December 31, 2009, may continue to be included as Tier 1 capital. Therefore, Oriental is permitted to continue to include its existing trust pre