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Loans Receivable

9 Months Ended

Sep. 30, 2017

NOTE 5 - LOANS

Oriental’s loan portfolio is composed of two segments, loans initially accounted for under the amortized cost method (referred to as "originated and other" loans) and loans acquired (referred to as "acquired" loans). Acquired loans are further segregated between acquired BBVAPR loans and acquired Eurobank loans. Acquired Eurobank loans were purchased subject to loss-sharing agreements with the FDIC, which were terminated on February 6, 2017.

As a result of the devastation caused by hurricanes Irma and Maria, Oriental offered an automatic three-month forbearance for the payment due on auto and personal loans for customers whose payments were not over 89 days past due at August 31, 2017. These payments, together with any additional accrued interest, will be paid in three installments after the original maturity of the loans. Residential mortgage loans will have the same forbearance, but the payments subject to the forbearance on non-conforming loans will be payable in aggregate as a balloon payment at the maturity of the loan and on conforming mortgage loans the repayment terms will be established on a case by case basis at the end of the forbearance period. For credit cards, that were not over 29 days past due at August 31, 2017, the minimum payment amount will be skipped until December 31, 2017. Oriental also offered an automatic one-month forbearance for the payment of principal and interest for commercial loans, for customers whose payments were not over 30 days past due at August 31, 2017, and the flexibility of extending it up to two additional months, based on the customer's needs. Oriental had approximately 100 thousand loans under the automatic three-month forbearance program with a UPB of $3.7 billion at September 30, 2017.

The composition of Oriental’s loan portfolio at September 30, 2017 and December 31, 2016 was as follows:

	September 30,		December 31,
	2017		2016
	(In thousands)
Originated and other loans and leases held for investment:
Mortgage	$	694,476	$	721,494
Commercial		1,245,711		1,277,866
Consumer		316,357		290,515
Auto and leasing		831,437		756,395
		3,087,981		3,046,270
Allowance for loan and lease losses on originated and other loans and leases		(87,541)		(59,300)
		3,000,440		2,986,970
Deferred loan costs, net		6,592		5,766
Total originated and other loans loans held for investment, net		3,007,032		2,992,736
Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		4,612		5,562
Consumer		29,464		32,862
Auto		26,562		53,026
		60,638		91,450
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-20		(3,363)		(4,300)
		57,275		87,150
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		532,948		569,253
Commercial		244,359		292,564
Consumer		1,598		4,301
Auto		49,258		85,676
		828,163		951,794
Allowance for loan and lease losses on acquired BBVAPR loans accounted for under ASC 310-30		(40,110)		(31,056)
		788,053		920,738
Total acquired BBVAPR loans, net		845,328		1,007,888
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		68,996		73,018
Commercial		53,028		81,460
Consumer		1,220		1,372
Total acquired Eurobank loans		123,244		155,850
Allowance for loan and lease losses on Eurobank loans		(23,146)		(21,281)
Total acquired Eurobank loans, net		100,098		134,569
Total acquired loans, net		945,426		1,142,457
Total held for investment, net		3,952,458		4,135,193
Mortgage loans held-for-sale		12,114		12,499
Total loans, net	$	3,964,572	$	4,147,692

Originated and Other Loans and Leases Held for Investment

Oriental’s originated and other loans held for investment are encompassed within four portfolio segments: mortgage, commercial, consumer, and auto and leasing.

The following tables present the aging of the recorded investment in gross originated and other loans held for investment at September 30, 2017 and December 31, 2016, by class of loans. Mortgage loans past due include delinquent loans in the GNMA buy-back option program. 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.

	September 30, 2017
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Mortgage
Traditional (by origination year):
Up to the year 2002	$	278	$	1,469	$	3,074	$	4,821	$	42,086	$	46,907	$	283
Years 2003 and 2004		242		3,388		5,963		9,593		74,405		83,998		-
Year 2005		-		2,465		3,231		5,696		39,363		45,059		-
Year 2006		179		1,965		5,536		7,680		55,883		63,563		-
Years 2007, 2008 and 2009		252		1,706		7,859		9,817		59,451		69,268		98
Years 2010, 2011, 2012, 2013		349		2,213		7,274		9,836		118,409		128,245		414
Years 2014, 2015, 2016 and 2017		-		184		1,247		1,431		120,538		121,969		-
		1,300		13,390		34,184		48,874		510,135		559,009		795
Non-traditional		-		506		3,529		4,035		14,670		18,705		-
Loss mitigation program		12,621		7,456		15,941		36,018		67,472		103,490		2,576
		13,921		21,352		53,654		88,927		592,277		681,204		3,371
Home equity secured personal loans		-		-		12		12		261		273		-
GNMA's buy-back option program		-		-		12,999		12,999		-		12,999		-
		13,921		21,352		66,665		101,938		592,538		694,476		3,371
Commercial
Commercial secured by real estate:
Corporate		-		-		-		-		209,000		209,000		-
Institutional		-		-		254		254		45,922		46,176		-
Middle market		-		303		3,545		3,848		233,829		237,677		-
Retail		292		461		9,471		10,224		233,701		243,925		-
Floor plan		-		-		-		-		3,607		3,607		-
Real estate		-		-		-		-		15,473		15,473		-
		292		764		13,270		14,326		741,532		755,858		-
Other commercial and industrial:
Corporate		-		-		-		-		163,192		163,192		-
Institutional		-		-		-		-		118,091		118,091		-
Middle market		2		-		881		883		81,061		81,944		-
Retail		608		1,053		1,219		2,880		85,289		88,169		-
Floor plan		8		-		53		61		38,396		38,457		-
		618		1,053		2,153		3,824		486,029		489,853		-
		910		1,817		15,423		18,150		1,227,561		1,245,711		-

	September 30, 2017
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Consumer
Credit cards	$	1,000	$	363	$	565	$	1,928	$	26,082	$	28,010	$	-
Overdrafts		45		12		19		76		189		265		-
Personal lines of credit		103		31		9		143		2,201		2,344		-
Personal loans		3,777		1,694		732		6,203		264,691		270,894		-
Cash collateral personal loans		447		32		18		497		14,347		14,844		-
		5,372		2,132		1,343		8,847		307,510		316,357		-
Auto and leasing		43,331		28,275		10,831		82,437		749,000		831,437		-
Total	$	63,534	$	53,576	$	94,262	$	211,372	$	2,876,609	$	3,087,981	$	3,371

	December 31, 2016
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Mortgage
Traditional (by origination year):
Up to the year 2002	$	196	$	2,176	$	3,371	$	5,743	$	44,542	$	50,285	$	158
Years 2003 and 2004		156		3,872		7,272		11,300		79,407		90,707		-
Year 2005		-		1,952		4,306		6,258		43,751		50,009		-
Year 2006		506		2,905		6,261		9,672		59,628		69,300		-
Years 2007, 2008 and 2009		409		1,439		11,732		13,580		63,149		76,729		398
Years 2010, 2011, 2012, 2013		349		1,772		10,417		12,538		127,322		139,860		583
Years 2014, 2015 and 2016		47		123		1,357		1,527		106,672		108,199		-
		1,663		14,239		44,716		60,618		524,471		585,089		1,139
Non-traditional		-		498		4,730		5,228		17,631		22,859		-
Loss mitigation program		8,911		7,205		16,541		32,657		70,871		103,528		1,724
		10,574		21,942		65,987		98,503		612,973		711,476		2,863
Home equity secured personal loans		-		-		-		-		337		337		-
GNMA's buy-back option program		-		-		9,681		9,681		-		9,681		-
		10,574		21,942		75,668		108,184		613,310		721,494		2,863
Commercial
Commercial secured by real estate:
Corporate		-		-		-		-		242,770		242,770		-
Institutional		-		-		254		254		26,546		26,800		-
Middle market		-		60		3,319		3,379		231,602		234,981		-
Retail		154		350		6,594		7,098		242,630		249,728		-
Floor plan		-		-		-		-		2,989		2,989		-
Real estate		-		-		-		-		16,395		16,395		-
		154		410		10,167		10,731		762,932		773,663		-
Other commercial and industrial:
Corporate		-		-		-		-		136,438		136,438		-
Institutional		-		-		-		-		180,285		180,285		-
Middle market		-		-		-		-		81,633		81,633		-
Retail		930		100		969		1,999		71,706		73,705		-
Floor plan		8		-		61		69		32,073		32,142		-
		938		100		1,030		2,068		502,135		504,203		-
		1,092		510		11,197		12,799		1,265,067		1,277,866		-

	December 31, 2016
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Consumer
Credit cards	$	527	$	283	$	525	$	1,335	$	25,023	$	26,358	$	-
Overdrafts		16		12		5		33		174		207		-
Personal lines of credit		41		4		32		77		2,327		2,404		-
Personal loans		2,474		1,489		1,081		5,044		241,228		246,272		-
Cash collateral personal loans		240		20		4		264		15,010		15,274		-
		3,298		1,808		1,647		6,753		283,762		290,515		-
Auto and leasing		42,714		19,014		8,173		69,901		686,494		756,395		-
Total	$	57,678	$	43,274	$	96,685	$	197,637	$	2,848,633	$	3,046,270	$	2,863

At September 30, 2017 and December 31, 2016, Oriental had carrying balance of $94.9 million and $136.6 million, respectively, in originated and other loans held for investment granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities as part of the institutional commercial loan segment. All originated and other loans granted to the Puerto Rico government 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. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations. On June 30, 2017, Oriental entered into an agreement to sell a performing originated municipal loan, which was due in July 2018, for $28.8 million. The sale reduced near-term risk associated with a likely refinancing. The loan was moved to other loans held-for-sale at June 30, 2017 with a balance of $33.7 million, and included a principal payment of $4.8 million received by Oriental on July 1, 2017. The sale transaction settled on July 5, 2017.

Acquired Loans

Acquired loans were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20 (Non-refundable fees and Other Costs). We have acquired loans in two acquisitions, BBVAPR and Eurobank.

Acquired BBVAPR Loans

Accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

Credit cards, retail and commercial revolving lines of credits, floor plans and performing auto loans with FICO scores over 660 acquired at a premium are accounted for under the guidance of ASC 310-20, which requires that any contractually required loan payment receivable in excess of Oriental’s initial investment in the loans be accreted into interest income on a level-yield basis over the life of the loan. Loans accounted for under ASC 310-20 are placed on non-accrual status when past due in accordance with Oriental’s non-accrual policy, and any accretion of discount or amortization of premium is discontinued. Acquired BBVAPR loans that were accounted for under the provisions of ASC 310-20 are removed from the acquired loan category at the end of the reporting period upon refinancing, renewal or normal re-underwriting.

The following tables present the aging of the recorded investment in gross acquired BBVAPR loans accounted for under ASC 310-20 as of September 30, 2017 and December 31, 2016, by class of loans:

	September 30, 2017
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Commercial
Commercial secured by real estate
Retail	$	-	$	-	$	95	$	95	$	26	$	121	$	-
Floor plan		-		-		936		936		393		1,329		-
		-		-		1,031		1,031		419		1,450		-
Other commercial and industrial
Retail		296		71		82		449		2,711		3,160		-
Floor plan		-		-		2		2		-		2		-
		296		71		84		451		2,711		3,162		-
		296		71		1,115		1,482		3,130		4,612		-
Consumer
Credit cards		977		567		467		2,011		24,797		26,808		-
Personal loans		75		8		39		122		2,534		2,656		-
		1,052		575		506		2,133		27,331		29,464		-
Auto		1,635		1,141		453		3,229		23,333		26,562		-
Total	$	2,983	$	1,787	$	2,074	$	6,844	$	53,794	$	60,638	$	-

	December 31, 2016
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Commercial
Commercial secured by real estate
Retail	$	33	$	-	$	110	$	143	$	-	$	143	$	-
Floor plan		-		-		219		219		2,171		2,390		-
		33		-		329		362		2,171		2,533		-
Other commercial and industrial
Retail		97		34		121		252		2,775		3,027		-
Floor plan		-		-		2		2		-		2		-
		97		34		123		254		2,775		3,029		-
		130		34		452		616		4,946		5,562		-
Consumer
Credit cards		736		369		708		1,813		28,280		30,093		-
Personal loans		48		14		120		182		2,587		2,769		-
		784		383		828		1,995		30,867		32,862		-
Auto		3,652		1,355		517		5,524		47,502		53,026		-
Total	$	4,566	$	1,772	$	1,797	$	8,135	$	83,315	$	91,450	$	-

Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

Acquired BBVAPR loans, except for credit cards, retail and commercial revolving lines of credits, floor plans and performing auto loans with FICO scores over 660 acquired at a premium, are accounted for by Oriental in accordance with ASC 310-30.

The carrying amount corresponding to acquired BBVAPR loans with deteriorated credit quality, including those accounted under ASC 310-30 by analogy, in the statements of financial condition at September 30, 2017 and December 31, 2016 is as follows:

	September 30,		December 31,
		2017		2016
		(In thousands)
Contractual required payments receivable:	$	1,503,630	$	1,669,602
Less: Non-accretable discount		364,548		363,107
Cash expected to be collected		1,139,082		1,306,495
Less: Accretable yield		310,919		354,701
Carrying amount, gross		828,163		951,794
Less: allowance for loan and lease losses		40,110		31,056
Carrying amount, net	$	788,053	$	920,738

At September 30, 2017 and December 31, 2016, Oriental had $49.7 million and $66.2 million, respectively, in loans granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities as part of its acquired BBVAPR loans accounted for under ASC 310-30. These loans are primarily secured municipal general obligations and funds recovered under a Puerto Rico escheat law. During the third quarter of 2017, Oriental received the scheduled payments of principal from the municipal general obligations and settled the loan payable from funds recovered under the escheat law that was in default.

The following tables describe the accretable yield and non-accretable discount activity of acquired BBVAPR loans accounted for under ASC 310-30 for the quarters and nine-month periods ended September 30, 2017, and 2016

	Quarter Ended September 30, 2017
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	270,148	$	56,038	$	4,853	$	1,486	$	332,525
Accretion		(7,434)		(7,114)		(1,350)		(384)		(16,282)
Change in expected cash flows		-		3,716		13		37		3,766
Transfer (to) from non-accretable discount		(6,158)		(2,950)		(8)		26		(9,090)
Balance at end of period	$	256,556	$	49,690	$	3,508	$	1,165	$	310,919

Non-Accretable Discount Activity:
Balance at beginning of period	$	306,504	$	16,867	$	23,960	$	19,431	$	366,762
Change in actual and expected losses		(2,310)		(8,679)		(191)		(124)		(11,304)
Transfer from (to) accretable yield		6,158		2,950		8		(26)		9,090
Balance at end of period	$	310,352	$	11,138	$	23,777	$	19,281	$	364,548

	Nine-Month Period Ended September 30, 2017
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	292,115	$	50,366	$	8,538	$	3,682	$	354,701
Accretion		(23,018)		(16,608)		(5,273)		(1,542)		(46,441)
Change in expected cash flows		2		19,907		163		123		20,195
Transfer (to) from non-accretable discount		(12,543)		(3,975)		80		(1,098)		(17,536)
Balance at end of period	$	256,556	$	49,690	$	3,508	$	1,165	$	310,919

Non-Accretable Discount Activity:
Balance at beginning of period	$	305,615	$	16,965	$	22,407	$	18,120	$	363,107
Change in actual and expected losses		(7,806)		(9,802)		1,450		63		(16,095)
Transfer from (to) accretable yield		12,543		3,975		(80)		1,098		17,536
Balance at end of period	$	310,352	$	11,138	$	23,777	$	19,281	$	364,548

	Quarter Ended September 30, 2016
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	283,823	$	52,307	$	14,103	$	4,885	$	355,118
Accretion		(8,197)		(6,686)		(3,107)		(662)		(18,652)
Change in actual and expected losses		(1)		1,763		618		(241)		2,139
Transfer from (to) non-accretable discount		24,056		(1,013)		(525)		233		22,751
Balance at end of period	$	299,681	$	46,371	$	11,089	$	4,215	$	361,356

Non-Accretable Discount Activity:
Balance at beginning of period	$	336,153	$	18,001	$	22,121	$	18,225	$	394,500
Change in actual and expected losses		(2,591)		(1,216)		(309)		121		(3,995)
Transfer (to) from accretable yield		(24,056)		1,013		525		(233)		(22,751)
Balance at end of period	$	309,506	$	17,798	$	22,337	$	18,113	$	367,754

	Nine-Month Period Ended September 30, 2016
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	268,794	$	65,026	$	21,578	$	6,290	$	361,688
Accretion		(24,798)		(20,973)		(10,934)		(2,470)		(59,175)
Change in actual and expected losses		(1)		4,745		1,249		(242)		5,751
Transfer (to) from non-accretable discount		55,686		(2,427)		(804)		637		53,092
Balance at end of period	$	299,681	$	46,371	$	11,089	$	4,215	$	361,356

Non-Accretable Discount Activity:
Balance at beginning of period	$	374,772	$	18,545	$	22,039	$	18,834	$	434,190
Change in actual and expected losses		(9,580)		(3,174)		(506)		(84)		(13,344)
Transfer from (to) accretable yield		(55,686)		2,427		804		(637)		(53,092)
Balance at end of period	$	309,506	$	17,798	$	22,337	$	18,113	$	367,754

Acquired Eurobank Loans

The carrying amount of acquired Eurobank loans at September 30, 2017 and December 31, 2016 is as follows:

	September 30		December 31
	2017		2016
	(In thousands)
Contractual required payments receivable:	$	182,562	$	232,698
Less: Non-accretable discount		6,935		12,340
Cash expected to be collected		175,627		220,358
Less: Accretable yield		52,383		64,508
Carrying amount, gross		123,244		155,850
Less: Allowance for loan and lease losses		23,146		21,281
Carrying amount, net	$	100,098	$	134,569

The following tables describe the accretable yield and non-accretable discount activity of acquired Eurobank loans for the quarters and nine-month periods ended September 30, 2017, and 2016:

	Quarter Ended September 30, 2017
	Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	43,012		9,157		1,906		-		-		54,075
Accretion		(1,736)		(2,480)		(39)		(11)		(73)		(4,339)
Change in expected cash flows		18		106		39		(49)		346		460
Transfer from (to) non-accretable discount		1,094		1,448		(142)		60		(273)		2,187
Balance at end of period	$	42,388	$	8,231	$	1,764	$	-	$	-	$	52,383

Non-Accretable Discount Activity:
Balance at beginning of period	$	6,687		2,010		299		-		14		9,010
Change in actual and expected losses		20		126		(39)		60		(55)		112
Transfer from (to) accretable yield		(1,094)		(1,448)		142		(60)		273		(2,187)
Balance at end of period	$	5,613	$	688	$	402	$	-	$	232	$	6,935

	Nine-Month Period Ended September 30, 2017
	Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	45,839	$	16,475	$	2,194	$	-	$	-	$	64,508
Accretion		(5,564)		(11,051)		(82)		(22)		(268)		(16,987)
Change in expected cash flows		119		1,427		82		(214)		730		2,144
Transfer from (to) non-accretable discount		1,994		1,380		(430)		236		(462)		2,718
Balance at end of period	$	42,388	$	8,231	$	1,764	$	-	$	-	$	52,383

Non-Accretable Discount Activity:
Balance at beginning of period	$	8,441	$	3,880	$	11	$	-	$	8	$	12,340
Change in actual and expected losses		(834)		(1,812)		(39)		236		(238)		(2,687)
Transfer from (to) accretable yield		(1,994)		(1,380)		430		(236)		462		(2,718)
Balance at end of period	$	5,613	$	688	$	402	$	-	$	232	$	6,935

	Quarter Ended September 30, 2016
	Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	48,336	$	29,142	$	2,204		-	$	-	$	79,682
Accretion		(2,217)		(6,570)		-		(62)		(490)		(9,339)
Change in actual and expected losses		646		1,719		(8)		62		490		2,909
Transfer from (to) non-accretable discount		3,737		(188)		(146)		-		-		3,403
Balance at end of period	$	50,502	$	24,103	$	2,050	$	-	$	-	$	76,655

Non-Accretable Discount Activity:
Balance at beginning of period	$	11,555	$	-	$	-	$	-	$	-	$	11,555
Change in actual and expected losses		(845)		617		10		-		-		(218)
Transfer (to) from accretable yield		(3,737)		188		146		-		-		(3,403)
Balance at end of period	$	6,973	$	805	$	156	$	-	$	-	$	7,934

	Nine-Month Period Ended September 30, 2016
	Loans Secured by 1-4 Family Residential Properties		Commercial		Construction & Development Secured by 1-4 Family Residential Properties		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of period	$	51,954	$	26,970	$	2,255	$	-	$	3,212	$	84,391
Accretion		(6,746)		(15,193)		(47)		(60)		(1,751)		(23,797)
Change in expected cash flows		1,432		14,431		(31)		(15)		(1,456)		14,361
Transfer from (to) non-accretable discount		3,862		(2,105)		(127)		75		(5)		1,700
Balance at end of period	$	50,502	$	24,103	$	2,050	$	-	$	-	$	76,655

Non-Accretable Discount Activity:
Balance at beginning of period	$	12,869	$	-	$	-	$	-	$	8,287	$	21,156
Change in actual and expected cash flows		(2,034)		(1,300)		29		75		(8,292)		(11,522)
Transfer (to) from accretable yield		(3,862)		2,105		127		(75)		5		(1,700)
Balance at end of period	$	6,973	$	805	$	156	$	-	$	-	$	7,934

Non-accrual Loans

The following table presents the recorded investment in loans in non-accrual status by class of loans as of September 30, 2017 and December 31, 2016:

	September 30,		December 31,
	2017		2016
	(In thousands)
Originated and other loans and leases held for investment
Mortgage
Traditional (by origination year):
Up to the year 2002	$	2,789	$	3,336
Years 2003 and 2004		6,107		7,668
Year 2005		3,367		4,487
Year 2006		5,537		6,746
Years 2007, 2008 and 2009		8,110		11,526
Years 2010, 2011, 2012, 2013		6,858		10,089
Years 2014, 2015, 2016 and 2017		1,248		1,404
		34,016		45,256
Non-traditional		3,529		4,730
Loss mitigation program		17,365		20,744
		54,910		70,730
Home equity secured personal loans		12		-
		54,922		70,730
Commercial
Commercial secured by real estate
Institutional		254		-
Middle market		3,848		4,682
Retail		14,358		11,561
		18,460		16,243
Other commercial and industrial
Middle market		968		1,278
Retail		2,220		1,950
Floor plan		53		61
		3,241		3,289
		21,701		19,532
Consumer
Credit cards		565		525
Overdrafts		19		-
Personal lines of credit		9		32
Personal loans		1,834		1,420
Cash collateral personal loans		18		4
		2,445		1,981
Auto and leasing		11,811		9,052
Total non-accrual originated loans	$	90,879	$	101,295

	September 30,		December 31,
	2017		2016
	(In thousands)
Acquired BBVAPR loans accounted for under ASC 310-20
Commercial
Commercial secured by real estate
Retail	$	121	$	143
Floor plan		936		1,149
		1,057		1,292
Other commercial and industrial
Retail		82		121
Floor plan		2		2
		84		123
		1,141		1,415
Consumer
Credit cards		467		708
Personal loans		39		120
		506		828
Auto		481		552
Total non-accrual acquired BBVAPR loans accounted for under ASC 310-20		2,128		2,795
Total non-accrual loans	$	93,007	$	104,090

Loans accounted for under ASC 310-30 are excluded from the above table as they are considered to be performing due to the application of the accretion method, in which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses or are accounted under the cost recovery method.

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 18 months or more past due, since they are insured loans. Therefore, these loans are included as non-performing loans but excluded from non-accrual loans. In addition, these loans are excluded from the impairment analysis.

At September 30, 2017 and December 31, 2016, loans whose terms have been extended and which are classified as troubled-debt restructurings that are not included in non-accrual loans amounted to $109.8 million and $98.1 million, respectively, as they are performing under their new terms.

Impaired Loans

Oriental evaluates all loans, some individually and others as homogeneous groups, for purposes of determining impairment. The total investment in impaired commercial loans that were individually evaluated for impairment was $67.8 million and $54.3 million at September 30, 2017 and December 31, 2016, respectively. The impairments on these commercial loans were measured based on the fair value of collateral or the present value of cash flows, including those identified as troubled-debt restructurings. The allowance for loan and lease losses for these impaired commercial loans amounted to $5.2 million and $1.8 million at September 30, 2017 and December 31, 2016, respectively. The total investment in impaired mortgage loans that were individually evaluated for impairment was $86.5 million and $91.6 million at September 30, 2017 and December 31, 2016, respectively. Impairment on mortgage loans assessed as troubled-debt restructurings was measured using the present value of cash flows. The allowance for loan losses for these impaired mortgage loans amounted to $9.5 million and $7.8 million at September 30, 2017 and December 31, 2016, respectively.

Originated and Other Loans and Leases Held for Investment

Oriental’s recorded investment in commercial and mortgage loans categorized as originated and other loans and leases held for investment that were individually evaluated for impairment and the related allowance for loan and lease losses at September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017
	Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage
	(In thousands)
Impaired loans with specific allowance:
Commercial	$	33,159	$	30,465	$	5,223	17%
Residential impaired and troubled-debt restructuring		95,680		86,511		9,524	11%
Impaired loans with no specific allowance:
Commercial		42,520		36,574		N/A	0%
Total investment in impaired loans	$	171,359	$	153,550	$	14,747	10%

	December 31, 2016
	Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage
	(In thousands)
Impaired loans with specific allowance:
Commercial	$	13,183	$	11,698	$	1,626	14%
Residential impaired and troubled-debt restructuring		100,101		91,650		7,761	8%
Impaired loans with no specific allowance
Commercial		49,038		41,441		N/A	0%
Total investment in impaired loans	$	162,322	$	144,789	$	9,387	6%

Acquired BBVAPR Loans Accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

Oriental’s recorded investment in acquired BBVAPR commercial loans accounted for under ASC 310-20 that were individually evaluated for impairment and the related allowance for loan and lease losses at September 30, 2017 and December 31, 2016 are as follows:


	September 30, 2017
	Unpaid		Recorded		Related
	Principal		Investment		Allowance		Coverage
	(In thousands)
Impaired loans with specific allowance
Commercial	$	926	$	748	$	12	2%
Impaired loans with no specific allowance
Commercial	$	-	$	-		N/A	0%
Total investment in impaired loans	$	926	$	748	$	12	2%


	December 31, 2016
	Unpaid		Recorded		Specific
	Principal		Investment		Allowance		Coverage
	(In thousands)
Impaired loans with specific allowance
Commercial	$	944	$	929	$	141	15%
Impaired loans with no specific allowance
Commercial	$	240	$	221		N/A	0%
Total investment in impaired loans	$	1,184	$	1,150	$	141	12%

Acquired BBVAPR Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

Oriental’s recorded investment in acquired BBVAPR loan pools accounted for under ASC 310-30 that have recorded impairments and their related allowance for loan and lease losses at September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017
							Coverage
	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance:
Mortgage	$	554,175	$	532,948	$	8,931	2%
Commercial		254,006		242,334		23,941	10%
Auto		49,347		49,258		7,238	15%
Total investment in impaired loan pools	$	857,528	$	824,540	$	40,110	5%

	December 31 , 2016
							Coverage
	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance:
Mortgage	$	595,757	$	569,250	$	2,682	0%
Commercial		199,092		195,528		23,452	12%
Auto		92,797		85,676		4,922	6%
Total investment in impaired loan pools	$	887,646	$	850,454	$	31,056	4%

The tables above only present information with respect to acquired BBVAPR loan pools accounted for under ASC 310-30 if there is a recorded impairment to such loan pools and a specific allowance for loan losses.

Acquired Eurobank Loans

Oriental’s recorded investment in acquired Eurobank loan pools that have recorded impairments and their related allowance for loan and lease losses as of September 30, 2017 and December 31, 2016 are as follows:

	September 30, 2017
							Coverage
	Unpaid		Recorded				to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance:
Loans secured by 1-4 family residential properties	$	81,679	$	68,996	$	14,219	21%
Commercial		58,043		51,523		8,922	17%
Consumer		15		1,220		5	0%
Total investment in impaired loan pools	$	139,737	$	121,739	$	23,146	19%

	December 31, 2016
							Coverage
	Unpaid		Recorded		Specific		to Recorded
	Principal		Investment		Allowance		Investment
	(In thousands)
Impaired loan pools with specific allowance
Loans secured by 1-4 family residential properties	$	88,017	$	73,018	$	11,947	16%
Commercial		81,992		72,140		9,328	13%
Consumer		29		1,372		6	0%
Total investment in impaired loan pools	$	170,038	$	146,530	$	21,281	15%

The tables above only present information with respect to acquired Eurobank loan pools accounted for under ASC 310-30 if there is a recorded impairment to such loan pools and a specific allowance for loan losses.

The following table presents the interest recognized in commercial and mortgage loans that were individually evaluated for impairment, which excludes loans accounted for under ASC 310-30, for the quarters and nine-month periods ended September 30, 2017 and 2016:

	Quarter Ended September 30,
	2017				2016
	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
	(In thousands)
Originated and other loans held for investment:
Impaired loans with specific allowance
Commercial	$	306	$	24,178	$	162	$	73,729
Residential troubled-debt restructuring		576		86,694		765		91,345
Impaired loans with no specific allowance
Commercial		675		36,133		259		62,946
		1,557		147,005		1,186		228,020
Acquired loans accounted for under ASC 310-20:
Impaired loans with specific allowance
Commercial		-		751		15		323
Impaired loans with no specific allowance
Commercial		-		-		-		952
Total interest income from impaired loans	$	1,557	$	147,756	$	1,201	$	229,295

	Nine-Month Period Ended September 30,
	2017					2016
	Interest Income Recognized		Average Recorded Investment			Interest Income Recognized		Average Recorded Investment
	(In thousands)
Originated and other loans held for investment:
Impaired loans with specific allowance
Commercial	$	612	$	17,298	$	202	$	155,094
Residential troubled-debt restructuring		1,685		87,951		2,321		90,881
Impaired loans with no specific allowance
Commercial		1,350		41,519		749		42,050
Total interest income from impaired loans	$	3,647	$	146,768	$	3,272	$	288,025

Acquired loans accounted for under ASC 310-20:
Impaired loans with specific allowance
Commercial	$	-	$	810	$	45	$	108
Impaired loans with no specific allowance
Commercial		-		-		-		736
Total interest income from impaired loans	$	3,647	$	147,578	$	3,317	$	288,869

Modifications

The following tables present the troubled-debt restructurings in all loan portfolios during the quarters and nine-month periods ended September 30, 2017 and 2016.

	Quarter Ended September 30, 2017
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	15	$	1,796	6.18%	401	$	1,804	4.28%	409
Commercial	2		154	7.99%	53		154	8.45%	51
Consumer	30		383	11.52%	61		383	11.21%	68
Auto	2		23	6.42%	63		23	8.13%	31


	Nine-Month Period Ended September 30, 2017
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	74	$	9,149	6.27%	390	$	9,132	4.26%	384
Commercial	20		3,527	6.51%	55		3,528	5.55%	66
Consumer	93		1,262	11.87%	64		1,301	10.79%	70
Auto	9		134	7.24%	66		135	11.75%	37

	Quarter Ended September 30, 2016
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	20	$	2,737	6.28%	297	$	2,768	4.72%	387
Commercial	5		7,352	5.31%	65		7,352	5.89%	130
Consumer	20		183	14.73%	72		210	12.72%	54


	Nine-Month Period Ended September 30, 2016
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	72	$	9,558	6.00%	347	$	9,284	4.69%	462
Commercial	13		8,675	5.53%	63		8,676	5.95%	120
Consumer	67		739	13.63%	74		813	11.12%	67

The following table presents troubled-debt restructurings for which there was a payment default during the twelve month periods ended September 30, 2017 and 2016:

	Twelve Month Period Ended September 30,
	2017			2016
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)
Mortgage	28	$	2,663	23	$	3,437
Commercial	8	$	868	2	$	157
Consumer	22	$	248	7	$	68

Credit Quality Indicators

Oriental categorizes originated and other loans and acquired loans accounted for under ASC 310-20 into risk categories 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.

Oriental uses the following definitions for risk ratings:

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 rated loans.

As of September 30, 2017 and December 31, 2016, and based on the most recent analysis performed, the risk category of gross originated and other loans and BBVAPR acquired loans accounted for under ASC 310-20 subject to risk rating by class of loans is as follows:

	September 30, 2017
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Commercial - originated and other loans held for investment
Commercial secured by real estate:
Corporate	$	209,000	$	192,513	$	14,550	$	1,937	$	-	$	-
Institutional		46,176		34,348		-		11,828		-		-
Middle market		237,677		198,479		11,020		28,178		-		-
Retail		243,925		214,924		7,585		21,416		-		-
Floor plan		3,607		2,287		1,320		-		-		-
Real estate		15,473		15,473		-		-		-		-
		755,858		658,024		34,475		63,359		-		-
Other commercial and industrial:
Corporate		163,192		163,192		-		-		-		-
Institutional		118,091		118,091		-		-		-		-
Middle market		81,944		65,530		8,618		7,796		-		-
Retail		88,169		83,729		891		3,549		-		-
Floor plan		38,457		35,368		3,036		53		-		-
		489,853		465,910		12,545		11,398		-		-
Total		1,245,711		1,123,934		47,020		74,757		-		-

Commercial - acquired loans (under ASC 310-20)
Commercial secured by real estate:
Retail		121		-		-		121		-		-
Floor plan		1,329		393		-		936		-		-
		1,450		393		-		1,057		-		-
Other commercial and industrial:
Retail		3,160		3,154		-		6		-		-
Floor plan		2		-		-		2		-		-
		3,162		3,154		-		8		-		-
Total		4,612		3,547		-		1,065		-		-

	September 30, 2017
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Retail - originated and other loans held for investment
Mortgage:
Traditional		559,009		524,825		-		34,184		-		-
Non-traditional		18,705		15,176		-		3,529		-		-
Loss mitigation program		103,490		87,549		-		15,941		-		-
Home equity secured personal loans		273		261		-		12		-		-
GNMA's buy-back option program		12,999		-		-		12,999		-		-
		694,476		627,811		-		66,665		-		-

Consumer:
Credit cards		28,010		27,445		-		565		-		-
Overdrafts		265		190		-		75		-		-
Unsecured personal lines of credit		2,344		2,335		-		9		-		-
Unsecured personal loans		270,894		270,160		-		734		-		-
Cash collateral personal loans		14,844		14,826		-		18		-		-
		316,357		314,956		-		1,401		-		-
Auto and Leasing		831,437		820,606		-		10,831		-		-
Total		1,842,270		1,763,373		-		78,897		-		-

Retail - acquired loans (accounted for under ASC 310-20)
Consumer:
Credit cards		26,808		26,342		-		466		-		-
Personal loans		2,656		2,617		-		39		-		-
		29,464		28,959		-		505		-		-
Auto		26,562		26,109		-		453		-		-
		56,026		55,068		-		958		-		-
	$	3,148,619	$	2,945,922	$	47,020	$	155,677	$	-	$	-

	December 31, 2016
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Commercial - originated and other loans held for investment
Commercial secured by real estate:
Corporate	$	242,770	$	226,768	$	16,002	$	-	$	-	$	-
Institutional		26,800		16,067		9,090		1,643		-		-
Middle market		234,981		194,913		11,689		28,379		-		-
Retail		249,728		222,205		8,559		18,964		-		-
Floor plan		2,989		2,989		-		-		-		-
Real estate		16,395		16,395		-		-		-		-
		773,663		679,337		45,340		48,986		-		-
Other commercial and industrial:
Corporate		136,438		136,438		-		-		-		-
Institutional		180,285		180,185		100		-		-		-
Middle market		81,633		63,556		16,150		1,927		-		-
Retail		73,705		68,743		731		4,231		-		-
Floor plan		32,142		29,267		2,814		61		-		-
		504,203		478,189		19,795		6,219		-		-
Total		1,277,866		1,157,526		65,135		55,205		-		-

Commercial - acquired loans (under ASC 310-20)
Commercial secured by real estate:
Retail		143		-		-		143		-		-
Floor plan		2,390		905		337		1,148		-		-
		2,533		905		337		1,291		-		-
Other commercial and industrial:
Retail		3,027		3,014		-		13		-		-
Floor plan		2		-		-		2		-		-
		3,029		3,014		-		15		-		-
Total		5,562		3,919		337		1,306		-		-

	December 31, 2016
	Risk Ratings

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Retail - originated and other loans held for investment
Mortgage:
Traditional		585,089		540,373		-		44,716		-		-
Non-traditional		22,859		18,129		-		4,730		-		-
Loss mitigation program		103,528		86,987		-		16,541		-		-
Home equity secured personal loans		337		337		-		-		-		-
GNMA's buy-back option program		9,681		-		-		9,681		-		-
		721,494		645,826		-		75,668		-		-

Consumer:
Credit cards		26,358		25,833		-		525		-		-
Overdrafts		207		174		-		33		-		-
Unsecured personal lines of credit		2,404		2,372		-		32		-		-
Unsecured personal loans		246,272		245,190		-		1,082		-		-
Cash collateral personal loans		15,274		15,270		-		4		-		-
		290,515		288,839		-		1,676		-		-
Auto and Leasing		756,395		748,221		-		8,174		-		-
Total		1,768,404		1,682,886		-		85,518		-		-

Retail - acquired loans (under ASC 310-20)
Consumer:
Credit cards		30,093		29,386		-		707		-		-
Personal loans		2,769		2,649		-		120		-		-
		32,862		32,035		-		827		-		-
Auto		53,026		52,510		-		516		-		-
Total		85,888		84,545		-		1,343		-		-
	$	3,137,720	$	2,928,876	$	65,472	$	143,372	$	-	$	-

- Definition

The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses.

+ References + Details