Investment Securities

3 Months Ended

Mar. 31, 2019

NOTE 3 – 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 March 31, 2019 and December 31, 2018, money market instruments included as part of cash and cash equivalents amounted to $7.7 million and $4.9 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 March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019
			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	$	947,332	$	2,504	$	12,558	$	937,278	2.37%
GNMA certificates		224,157		3,072		671		226,558	3.15%
CMOs issued by US government-sponsored agencies		62,927		-		1,538		61,389	1.90%
Total mortgage-backed securities		1,234,416		5,576		14,767		1,225,225	2.49%
Investment securities
US Treasury securities		10,933		-		74		10,859	1.37%
Obligations of US government-sponsored agencies		2,238		-		42		2,196	1.38%
Other debt securities		1,162		27		-		1,189	2.99%
Total investment securities		14,333		27		116		14,244	1.50%
Total securities available for sale	$	1,248,749	$	5,603	$	14,883	$	1,239,469	2.47%

	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%

On January 1, 2019, Oriental adopted the Accounting Standard Update ("ASU") No. 2017-12 and reclassified all of its mortgage backed securities with a carrying value of $424.7 million and an unrealized losses of $14.4 million from the held-to-maturity portfolio into the available-for-sale portfolio.

The amortized cost and fair value of Oriental’s investment securities at March 31, 2019, 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.

	March 31, 2019
	Available-for-sale
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities
Due from 1 to 5 years
FNMA and FHLMC certificates	$	3,056	$	3,054
Total due from 1 to 5 years		3,056		3,054
Due after 5 to 10 years
CMOs issued by US government-sponsored agencies	$	55,367	$	53,936
FNMA and FHLMC certificates		267,310		266,195
GNMA certificates		94		98
Total due after 5 to 10 years		322,771		320,229
Due after 10 years
FNMA and FHLMC certificates	$	676,966	$	668,029
GNMA certificates		224,063		226,460
CMOs issued by US government-sponsored agencies		7,560		7,453
Total due after 10 years		908,589		901,942
Total mortgage-backed securities		1,234,416		1,225,225
Investment securities
Due less than one year
US Treasury securities	$	10,933	$	10,859
Total due in less than one year		10,933		10,859
Due from 1 to 5 years
Obligations of US government-sponsored agencies	$	2,238	$	2,196
Other debt securities		100		100
Total due from 1 to 5 years		2,338		2,296
Due from 5 to 10 years
Other debt securities		1,062		1,089
Total due after 5 to 10 years		1,062		1,089
Total investment securities		14,333		14,244
Total	$	1,248,749	$	1,239,469

During the quarter ended March 31, 2019, Oriental retained securitized GNMA pools totaling $15.1 million amortized cost, at a yield of 3.84% from its own originations while during the year ended March 31, 2018 that amount totaled $18.0 million amortized cost, at a yield of 3.26%.

During the quarters ended March 31, 2019 and 2018, Oriental did not sell mortgage-backed securities or investment securities.

The following tables show Oriental’s gross unrealized losses and fair value of investment securities available-for-sale at March 31, 2019 and held-to-maturity at March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	March 31, 2019
	12 months or more
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies	$	62,927	$	1,538	$	61,389
FNMA and FHLMC certificates		686,773		12,558		674,215
Obligations of US Government and sponsored agencies		2,238		42		2,196
GNMA certificates		73,290		670		72,620
US Treasury Securities		9,983		74		9,909
	$	835,211	$	14,882	$	820,329

	Less than 12 months
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
GNMA certificates		20		1		19
	$	20	$	1	$	19

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies	$	62,927	$	1,538	$	61,389
FNMA and FHLMC certificates		686,773		12,558		674,215
Obligations of US government and sponsored agencies		2,238		42		2,196
GNMA certificates		73,310		671		72,639
US Treasury Securities		9,983		74		9,909
	$	835,231	$	14,883	$	820,348

	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 Treasury 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

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 ($835.2 million, amortized cost) with an unrealized loss position at March 31, 2019 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.