UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

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

EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 001-12647

OFG Bancorp

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

Principal Executive Offices:

254 Muñoz Rivera Avenue

San Juan, Puerto Rico 00918

Telephone Number: (787) 771-6800

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑No ☐

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

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

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

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

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

49,847,438 common shares ($1.00 par value per share) outstanding as of October 31, 2021

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	14
		Note 3 – Investment Securities	14
		Note 4 – Loans	20
		Note 5 – Allowance for Credit Losses	35
		Note 6 – Foreclosed Real Estate	38
		Note 7 – Servicing Assets	38
		Note 8 – Derivatives	40
		Note 9 – Core Deposit, customer relationship intangible and other intangibles	41
		Note 10 – Accrued Interest Receivable and Other Assets	43
		Note 11 – Deposits and Related Interest	44
		Note 12 – Borrowings and Related Interest	45
		Note 13 – Offsetting of Financial Assets and Liabilities	47
		Note 14 – Income Taxes	47
		Note 15 – Regulatory Capital Requirements	48
		Note 16 – Stockholders’ Equity	50
		Note 17 – Accumulated Other Comprehensive Income	51
		Note 18 – Earnings per Common Share	54
		Note 19 – Guarantees	54
		Note 20 – Commitments and Contingencies	55
		Note 21 – Operating Leases	57
		Note 22 – Fair Value of Financial Instruments	60
		Note 23 – Banking and Financial Service Revenues	67
		Note 24 – Business Segments	69
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		72
		Critical Accounting Policies and Estimates	73
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		109
Item 4.	Controls and Procedures		114
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		115
Item 1A.	Risk Factors		115
Item 3.	Default upon Senior Securities		116
Item 4.	Mine Safety Disclosures		116
Item 5.	Other Information		116
Item 6.	Exhibits		117
Signatures			118

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, 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;

 unforeseen or catastrophic events, including extreme weather events, other natural disasters, man-made disasters or the emergence of pandemics, 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 disruption to our operations of a cybersecurity breach, including a ransomware attack or theft of sensitive proprietary or client information;

 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 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 emergence of widespread health emergencies or pandemics, including 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 federal and local 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.

1

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.

2

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020

	September 30,		December 31,
	2021		2020
	(In thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	2,745,675	$	2,142,294
Money market investments		9,837		11,908
Total cash and cash equivalents		2,755,512		2,154,202
Restricted cash		179		1,375
Investments:
Trading securities, at fair value, with amortized cost of $432 (December 31, 2020 - $432)		22		22
Investment securities available-for-sale, at fair value, with amortized cost of $497,450
(December 31, 2020, amortized cost $432,176); no allowance for credit losses		509,107		446,438
Investment securities held-to-maturity, at amortized cost, with fair value of $371,827
no allowance for credit losses		375,214		-
Federal Home Loan Bank (FHLB) stock, at cost		7,496		8,278
Other investments		10,434		3,962
Total investments		902,273		458,700
Loans:
Loans held-for-sale, at lower of cost or fair value		52,494		43,935
Loans held for investment, net of allowance for credit losses of $180,872 (December 31, 2020 - $204,809)		6,229,991		6,457,324
Total loans		6,282,485		6,501,259
Other assets:
Foreclosed real estate		13,904		11,596
Accrued interest receivable		56,815		65,547
Deferred tax asset, net		128,663		162,478
Premises and equipment, net		86,981		83,786
Customers' liability on acceptances		24,371		33,349
Servicing assets		48,227		47,295
Goodwill		86,069		86,069
Other intangible assets		38,545		45,896
Operating lease right-of-use assets		30,625		31,383
Other assets		152,216		143,076
Total assets	$	10,606,865	$	9,826,011
See notes to unaudited consolidated financial statements

3

OFG BANCORP

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

AS OF SEPTEMBER 30, 2021 AND DECEMBER 31, 2020 (CONTINUED)

	September 30,		December 31,
	2021		2020
	(In thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Demand deposits	$	5,531,124	$	4,613,309
Savings accounts		2,378,211		1,944,415
Time deposits		1,335,054		1,857,916
Total deposits		9,244,389		8,415,640
Borrowings:
Advances from FHLB		62,559		65,561
Subordinated capital notes		36,083		36,083
Other borrowings		375		707
Total borrowings		99,017		102,351
Other liabilities:
Securities purchased but not yet received		31,565		-
Derivative liabilities		1,136		1,712
Acceptances executed and outstanding		24,371		33,349
Operating lease liabilities		32,167		32,566
Accrued expenses and other liabilities		120,555		154,418
Total liabilities		9,553,200		8,740,036
Commitments and contingencies (See Note 26)		nil		nil
Stockholders’ equity:
Preferred stock;