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Investment Securities

12 Months Ended

Dec. 31, 2018

Investments [Abstract]

Investments Securities

NOTE 4 – INVESTMENT SECURITIES

Money Market Investments

Oriental 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 December 31, 2018 and 2017, money market instruments included as part of cash and cash equivalents amounted to $4.9 million and $7.0 million, respectively.

Investment Securities

The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by Oriental at December 31, 2018 and 2017 were as follows:

	December 31, 2018
				Gross			Gross						Weighted
	Amortized			Unrealized			Unrealized			Fair			Average
	Cost			Gains			Losses			Value			Yield
	(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	561,878		$	404		$	8,951		$	553,331		2.59%
GNMA certificates		211,947			1,050			2,827			210,170		3.10%
CMOs issued by US government-sponsored agencies		66,230			-			2,166			64,064		1.90%
Total mortgage-backed securities		840,055			1,454			13,944			827,565		2.66%
Investment securities
US Treasury securities		10,924			-			119			10,805		1.36%
Obligations of US government-sponsored agencies		2,325			-			60			2,265		1.38%
Other debt securities		1,207			15			-			1,222		2.99%
Total investment securities		14,456			15			179			14,292		1.50%
Total securities available for sale	$	854,511		$	1,469		$	14,123		$	841,857		2.64%
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates	$	424,740		$	-		$	14,387		$	410,353		2.07%

	December 31, 2017
				Gross			Gross						Weighted
	Amortized			Unrealized			Unrealized			Fair			Average
	Cost			Gains			Losses			Value			Yield
	(In thousands)
Available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	383,194		$	1,402		$	2,881		$	381,715		2.39%
GNMA certificates		166,436			1,486			584			167,338		2.94%
CMOs issued by US government-sponsored agencies		82,026			-			1,955			80,071		1.90%
Total mortgage-backed securities		631,656			2,888			5,420			629,124		2.47%
Investment securities
US Treasury securities		10,276			-			113			10,163		1.25%
Obligations of US government-sponsored agencies		2,927			-			48			2,879		1.38%
Obligations of Puerto Rico government and public instrumentalities		2,455			-			362			2,093		5.55%
Other debt securities		1,486			52			-			1,538		2.97%
Total investment securities		17,144			52			523			16,673		2.04%
Total securities available-for-sale	$	648,800		$	2,940		$	5,943		$	645,797		2.46%
Held-to-maturity
Mortgage-backed securities
FNMA and FHLMC certificates	$	506,064		$	-		$	8,383		$	497,681		2.07%

The amortized cost and fair value of Oriental’s investment securities at December 31, 2018, by contractual maturity, are shown in the next table. 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.

	December 31, 2018
	Available-for-sale						Held-to-maturity
	Amortized Cost			Fair Value			Amortized Cost			Fair Value
	(In thousands)
Mortgage-backed securities
Due from 1 to 5 years
FNMA and FHLMC certificates	$	3,617		$	3,570		$	-		$	-
Total due from 1 to 5 years		3,617			3,570			-			-
Due after 5 to 10 years
CMOs issued by US government-sponsored agencies	$	58,221		$	56,202		$	-		$	-
FNMA and FHLMC certificates		253,447			249,808			-			-
Total due after 5 to 10 years		311,668			306,010			-			-
Due after 10 years
FNMA and FHLMC certificates	$	304,814		$	299,953		$	424,740		$	410,353
GNMA certificates		211,947			210,170			-			-
CMOs issued by US government-sponsored agencies		8,009			7,862			-			-
Total due after 10 years		524,770			517,985			424,740			410,353
Total mortgage-backed securities		840,055			827,565			424,740			410,353
Investment securities
Due less than one year
US Treasury securities	$	10,924		$	10,805		$	-		$	-
Total due in less than one year		10,924			10,805			-			-
Due from 1 to 5 years
Obligations of US government-sponsored agencies	$	2,325		$	2,265		$	-		$	-
Other debt securities		100			100			-			-
Total due from 1 to 5 years		2,425			2,365			-			-
Due from 5 to 10 years
Other debt securities		1,107			1,122			-			-
Total due after 5 to 10 years		1,107			1,122			-			-
Total investment securities		14,456			14,292			-			-
Total	$	854,511		$	841,857		$	424,740		$	410,353

During the year ended December 31, 2018, Oriental retained securitized GNMA pools totaling $56.8 million amortized cost, at a yield of 3.93% from its own originations while during the year ended December 31, 2017 that amount totaled $74.9 million amortized cost, at a yield of 3.14%. During the year ended December 31, 2016, that amount totaled $112.2 million, amortized cost, at a yield of 2.89%.

During the year ended December 31, 2018, Oriental sold $17.8 million of available-for-sale Government National Mortgage Association (“GNMA”) certificates from its recurring mortgage loan origination and securitization activities. These sales did not realize any gains or losses during such period. During the year ended December 31, 2017, Oriental sold $166.0 million of mortgage-backed securities and $84.1 million of US Treasury securities, and recorded a net gain on sale of securities of $6.9 million. During the year ended December 31, 2016, Oriental sold $277.2 million of mortgage-backed securities and $11.1 million of Puerto Rico government bonds, and recorded a net gain on sale of securities of $12.2 million.

	Year Ended December 31, 2018
				Book Value
Description	Sale Price			at Sale			Gross Gains			Gross Losses
	(In thousands)
Sale of securities available-for-sale
Mortgage-backed securities
GNMA certificates	$	17,837		$	17,837		$	-		$	-
Total	$	17,837		$	17,837		$	-		$	-

	Year Ended December 31, 2017
				Book Value
Description	Sale Price			at Sale			Gross Gains			Gross Losses
	(In thousands)
Sale of securities available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	107,510		$	102,311		$	5,199		$	-
GNMA certificates		65,284			63,704			1,580			-
Investment securities
US Treasury securities		84,202			84,085			117			-
Total mortgage-backed securities	$	256,996		$	250,100		$	6,896		$	-
	Year Ended December 31, 2016
				Book Value
Description	Sale Price			at Sale			Gross Gains			Gross Losses
	(In thousands)
Sale of securities available-for-sale
Mortgage-backed securities
FNMA and FHLMC certificates	$	293,505		$	277,181		$	16,324		$	-
Investment securities
Obligations of PR government and public instrumentalities		6,978			11,095			-			4,117
Total mortgage-backed securities	$	300,483		$	288,276		$	16,324		$	4,117

The following tables show Oriental’s gross unrealized losses and fair value of investment securities available-for-sale and held-to-maturity, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position at December 31, 2018 and 2017:

	December 31, 2018
	12 months or more
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	$	66,230		$	2,166		$	64,064
FNMA and FHLMC certificates		357,955			8,603			349,352
Obligations of US Government and sponsored agencies		2,325			60			2,265
GNMA certificates		131,044			2,739			128,305
US Treasury Securities		9,977			119			9,858
	$	567,531		$	13,687		$	553,844
Securities held to maturity
FNMA and FHLMC certificates	$	424,740		$	14,387		$	410,353
	Less than 12 months
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
FNMA and FHLMC certificates		109,772			348			109,424
GNMA certificates		17,126			88			17,038
US Treasury Securities		323			-			323
	$	127,221		$	436		$	126,785
	Total
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies	$	66,230		$	2,166		$	64,064
FNMA and FHLMC certificates		467,727			8,951			458,776
Obligations of US government and sponsored agencies		2,325			60			2,265
GNMA certificates		148,170			2,827			145,343
US Treausury Securities		10,300			119			10,181
	$	694,752		$	14,123		$	680,629
Securities held-to-maturity
FNMA and FHLMC certificates	$	424,740		$	14,387		$	410,353

	December 31, 2017
	12 months or more
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	$	72,562		$	1,857		$	70,705
FNMA and FHLMC certificates		111,635			2,122			109,513
Obligations of US Government and sponsored agencies		2,927			48			2,879
Obligations of Puerto Rico government and public instrumentalities		2,455			362			2,093
GNMA certificates		20,803			499			20,304
US Treasury Securities		9,952			113			9,839
	$	220,334		$	5,001		$	215,333
Securities held to maturity
FNMA and FHLMC certificates	$	352,399			7,264			345,135
	Less than 12 months
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies		9,464			98			9,366
FNMA and FHLMC certificates		125,107			759			124,348
GNMA certificates		14,001			85			13,916
US Treasury Securities		324			-			324
	$	148,896		$	942		$	147,954
Securities held to maturity
FNMA and FHLMC certificates	$	153,665		$	1,119		$	152,546
	Total
	Amortized			Unrealized			Fair
	Cost			Loss			Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies		82,026			1,955			80,071
FNMA and FHLMC certificates		236,742			2,881			233,861
Obligations of Puerto Rico government and public instrumentalities		2,455			362			2,093
Obligations of US government and sponsored agencies		2,927			48			2,879
GNMA certificates		34,804			584			34,220
US Treausury Securities		10,276			113			10,163
	$	369,230		$	5,943		$	363,287
Securities held to maturity
FNMA and FHLMC certificates	$	506,064		$	8,383		$	497,681

Oriental performs valuations of the investment securities on a monthly basis. Moreover, Oriental conducts quarterly reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairment. Any portion of a decline in value associated with credit loss is recognized in the statements of operations with the remaining noncredit-related component recognized in other comprehensive income (loss). A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.” Other-than-temporary impairment analysis is based on estimates that depend on market conditions and are subject to further change over time. In addition, while Oriental believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing improvement, including those made as a result of market developments. Consequently, it is reasonably possible that changes in estimates or conditions could result in the need to recognize additional other-than-temporary impairment charges in the future.

All of the investments ($1.1 billion, amortized cost) with an unrealized loss position at December 31, 2018 consist of securities issued or guaranteed by the U.S. Treasury or U.S. government-sponsored agencies, all of which are highly liquid securities that have a large and efficient secondary market. Their aggregate losses and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthiness of the issuers or guarantors of such securities.

The following table presents a rollforward of credit-related impairment losses recognized in earnings for the years ended December 31, 2018, 2017 and 2016 on available-for-sale securities:

		Year Ended December 31,
		2018			2017			2016
		(In thousands)
Balance at beginning of year		$	-		$	-		$	1,490
Reductions for securities sold during the period (realized)			-			-			(1,490)
Additions from credit losses recognized on available-for-sale securities that had no previous impairment losses			-			-			-
Balance at end of year		$	-		$	-		$	-

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The entire disclosure for investments in certain debt and equity securities.

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-Publisher FASB
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