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Operating Leases

3 Months Ended

Mar. 31, 2021

NOTE 21— OPERATING LEASES

Substantially all leases in which OFG is the lessee are comprised of real estate property for branches, ATM locations, and office space with terms extending through 2038. OFG’s leases do not contain residual value guarantees or material variable lease payments. All leases are classified as operating leases and are included on the consolidated statements of financial condition as a right-of-use asset and a corresponding lease liability. OFG leases to others certain space in its principal offices for terms extending through 2023; all are operating leases.

Operating Lease Cost

	Quarter Ended March 31,
	2021		2020		Statement of Operations Classification
	(In thousands)
Lease costs	$	3,373	$	3,338	Occupancy and equipment
Variable lease costs		493		588	Occupancy and equipment
Short-term lease cost (benefit)		20		(157)	Occupancy and equipment
Lease income		(120)		(123)	Occupancy and equipment
Total lease cost	$	3,766	$	3,646

Operating Lease Assets and Liabilities

	March 31,		December 31
	2021		2020		Statement of Financial Condition Classification
	(In thousands)
Right-of-use assets	$	32,714	$	31,383	Operating lease right-of-use assets
Lease Liabilities	$	34,017	$	32,566	Operating leases liabilities

	March 31, 2021
	March 31, 2021
	(In thousands)
Weighted-average remaining lease term		5.97 years
Weighted-average discount rate		6.7%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:

	Minimum Rent
Year Ending December 31,	(In thousands)
2021	$	9,905
2022		8,792
2023		7,726
2024		5,638
2025		4,036
Thereafter		10,161
Total lease payments	$	46,258
Less imputed interest		12,241
Present value of lease liabilities	$	34,017

In April 2020, the FASB staff issued a Q&A document on accounting for lease concessions related to the effects of the COVID-19 pandemic. The FASB staff noted that entities may elect to not evaluate whether certain concessions provided by lessors to mitigate the effects of Covid-19 on lessees are lease modifications. This option is intended to reduce the operational challenges of individually assessing every Covid-19 related lease concession to determine whether it results in having to apply Topic 842 lease modification guidance. This election is available only for concessions related to the effects of the Covid-19 pandemic that do not result in a substantial increase in either the rights of the lessor or the obligations of the lessee. For entities that choose this election, they may account for the concession as if no changes to the lease contract were made. Under that accounting, a lessor would continue to recognize income. OFG has elected to apply the relief provided by the FASB not to evaluate individual contracts. OFG also elected not to apply the lease modification framework for concessions granted.

OFG, as lessor, leases and subleases real property to lessee tenants under operating leases. As of March 31, 2021, no material lease concessions have been granted to lessees. OFG, as lessee, also leases real estate property for branch locations, ATM locations, and office space. As of March 31, 2021, OFG has not requested any lease concessions.

During the year ended December 31, 2020, OFG decided to consolidate several branches as a result of the Scotiabank PR & USVI Acquisition and modified certain lease contracts. These contracts were evaluated under Topic 842 lease modification guidance and removed from books, as they were considered short-term at December 31, 2020.