Investment Securities

12 Months Ended

Dec. 31, 2019

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, 2019 and 2018, money market instruments included as part of cash and cash equivalents amounted to $6.8 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 December 31, 2019 and 2018 were as follows:

	December 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	$	403,227	$	846	$	1,417	$	402,656	2.00%
GNMA certificates		215,755		718		4		216,469	2.33%
CMOs issued by US government-sponsored agencies		55,235		16		490		54,761	1.97%
Total mortgage-backed securities		674,217		1,580		1,911		673,886	2.11%
Investment securities
US Treasury securities		397,183		-		-		397,183	1.60%
Obligations of US government-sponsored agencies		1,967		-		6		1,961	1.38%
Other debt securities		1,108		31		-		1,139	3.00%
Total investment securities		400,258		31		6		400,283	1.60%
Total securities available for sale	$	1,074,475	$	1,611	$	1,917	$	1,074,169	1.92%

	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 ASU No. 2017-12 and reclassified all of its mortgage backed securities with a carrying value of $424.7 million and 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 December 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.

	December 31, 2019
	Available-for-sale
	Amortized Cost		Fair Value
	(In thousands)
Mortgage-backed securities
Due from 1 to 5 years
FNMA and FHLMC certificates	$	1,611	$	1,640
GNMA certificates		785		785
Total due from 1 to 5 years		2,396		2,425
Due after 5 to 10 years
CMOs issued by US government-sponsored agencies	$	45,481	$	45,003
FNMA and FHLMC certificates		111,923		111,916
GNMA certificates		80,675		80,676
Total due after 5 to 10 years		238,079		237,595
Due after 10 years
FNMA and FHLMC certificates	$	289,693	$	289,100
GNMA certificates		134,295		135,008
CMOs issued by US government-sponsored agencies		9,754		9,758
Total due after 10 years		433,742		433,866
Total mortgage-backed securities		674,217		673,886
Investment securities
Due less than one year
US Treasury securities	$	377,153	$	377,153
Other debt securities		250		250
Total due in less than one year		377,403		377,403
Due from 1 to 5 years
Obligations of US government-sponsored agencies	$	1,967	$	1,961
US Treasury securities		20,030		20,030
Total due from 1 to 5 years		21,997		21,991
Due from 5 to 10 years
Other debt securities		858		889
Total due after 5 to 10 years		858		889
Total investment securities		400,258		400,283
Total	$	1,074,475	$	1,074,169

During the year ended December 31, 2019 Oriental sold $680.4 million available-for-sale mortgage-backed securities, at attractive yields and terms and recognized a gain in the sale of $8.3 million, preparing for the Scotiabank PR & USVI Acquisition. During the year ended 2018, Oriental also sold $17.8 million 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 2017 Oriental sold $166.0 million available-for-sale 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, 2019, Oriental retained securitized GNMA pools totaling $62.8 million amortized cost, at a yield of 3.23% from its own originations, while during the year ended 2018 that amount totaled $56.8 million amortized cost, at a yield of 3.93%. During the year ended 2017, that amount totaled $74.9 million amortized cost, at a yield of 3.14% from its own originations.

During the year ended December 31, 2019, Oriental completed the Scotiabank PR & USVI Acquisition recognizing available-for-sale securities amounting to $574.6 million with an average yield of 1.79% and an average duration of 1.55 years. This portfolio is comprised of US Treasury Notes, agency mortgage-backed-securities and agency CMO’s.

	Year Ended December 31, 2019
			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	$	451,081	$	447,305	$	3,776	$	-
GNMA certificates		229,385		224,887		4,498		-
Total	$	680,466	$	672,192	$	8,274	$	-


	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	$	-

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

	December 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	$	35,417	$	387	$	35,030
FNMA and FHLMC certificates		259,099		1,415		257,684
Obligations of US Government and sponsored agencies		1,967		6		1,961
GNMA certificates		19		-		19
	$	296,502	$	1,808	$	294,694

	Less than 12 months
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US Government-sponsored agencies		11,503		103		11,400
FNMA and FHLMC certificates		4,919		2		4,917
GNMA certificates		3,549		4		3,545
US Treasury Securities		627		-		627
	$	20,598	$	109	$	20,489

	Total
	Amortized		Unrealized		Fair
	Cost		Loss		Value
	(In thousands)
Securities available-for-sale
CMOs issued by US government-sponsored agencies	$	46,920	$	490	$	46,430
FNMA and FHLMC certificates		264,018		1,417		262,601
Obligations of US government and sponsored agencies		1,967		6		1,961
GNMA certificates		3,568		4		3,564
US Treasury Securities		627		-		627
	$	317,100	$	1,917	$	315,183

	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 its 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. 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 ($317.1 million, amortized cost) with an unrealized loss position at December 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.