REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2022

Regulatory Capital Requirements

OFG (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal and Puerto Rico banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on OFG’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, OFG and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The risk-based capital standards applicable to OFG and the Bank (“Basel III capital rules”) are based on the final capital framework for strengthening international capital standards, known as Basel III, of the Basel Committee on Banking Supervision. Pursuant to the Basel III capital rules, OFG and the Bank are required to maintain the following:

•A minimum ratio of Common equity Tier 1 capital (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” that is composed entirely of CET1 capital (resulting in a minimum ratio of CET1 to risk-weighted assets of at least 7.0%).

•A minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (resulting in a minimum Tier 1 capital ratio of 8.5%).

•A minimum ratio of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (resulting in a minimum total capital ratio of 10.5%).

•A minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

The federal banking regulatory agencies adopted a final rule, pursuant to the Economic Growth and Regulatory Paperwork Reduction Act of 1996 that simplifies for banking organizations following non-advanced approaches the regulatory capital treatment for mortgage servicing assets (“MSAs”) and certain deferred tax assets arising from temporary differences (temporary difference DTAs). It increased CET1 capital threshold deductions from 10% to 25% and removed the aggregate 15% CET1 threshold deduction. However, it retained the 250% risk weight applicable to non-deducted amounts of MSAs and temporary difference DTAs. OFG implemented the simplifications to the capital rule on January 1, 2020.

On January 1, 2020, OFG adopted CECL with the initial implementation adjustment to Non-PCD loans and off-balance sheet instruments against retained earnings. On March 27, 2020, in response to the Covid-19 pandemic, U.S. banking regulators issued an interim final rule that OFG adopted to delay for two years the initial adoption impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during 2021 and 2022 (i.e., a five-year transition period). During the two-year delay, OFG added back to CET1 capital 100 percent of the initial adoption impact of CECL plus 25 percent of the cumulative quarterly changes in the allowance for credit losses (i.e., quarterly transitional amounts). After two years, starting on January 1, 2022, the quarterly transitional amounts along with the initial adoption impact of CECL will be phased out of CET1 capital over the three-year period.

As of December 31, 2022 and 2021, OFG and the Bank met all capital adequacy requirements to which they are subject. As of December 31, 2022 and 2021, OFG and the Bank are “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” an institution must maintain minimum CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the tables presented below.

OFG’s and the Bank’s actual capital amounts and ratios as of December 31, 2022 and 2021 are as follows:


	Actual				Minimum Capital Requirement (including capital conservation buffer)				Minimum to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
OFG Bancorp Ratios
As of December 31, 2022
Total capital to risk-weighted assets	$	1,132,658	14.89	%	$	798,574	10.50	%	$	760,547	10.00	%
Tier 1 capital to risk-weighted assets	$	1,037,385	13.64	%	$	646,465	8.50	%	$	608,437	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	1,037,385	13.64	%	$	532,383	7.00	%	$	494,355	6.50	%
Tier 1 capital to average total assets	$	1,037,385	10.36	%	$	400,445	4.00	%	$	500,557	5.00	%
As of December 31, 2021
Total capital to risk-weighted assets	$	1,086,897	15.52	%	$	735,512	10.50	%	$	700,488	10.00	%
Tier 1 capital to risk-weighted assets	$	999,284	14.27	%	$	595,414	8.50	%	$	560,390	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	964,284	13.77	%	$	490,341	7.00	%	$	455,317	6.50	%
Tier 1 capital to average total assets	$	999,284	9.69	%	$	412,359	4.00	%	$	515,449	5.00	%


	Actual				Minimum Capital Requirement (including capital conservation buffer)				Minimum to be Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Bank Ratios
As of December 31, 2022
Total capital to risk-weighted assets	$	1,028,126	13.61	%	$	793,124	10.50	%	$	755,356	10.00	%
Tier 1 capital to risk-weighted assets	$	933,494	12.36	%	$	642,053	8.50	%	$	604,285	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	933,494	12.36	%	$	528,749	7.00	%	$	490,981	6.50	%
Tier 1 capital to average total assets	$	933,494	9.42	%	$	396,525	4.00	%	$	495,656	5.00	%
As of December 31, 2021
Total capital to risk-weighted assets	$	995,549	14.34	%	$	728,867	10.50	%	$	694,159	10.00	%
Tier 1 capital to risk-weighted assets	$	908,717	13.09	%	$	590,035	8.50	%	$	555,327	8.00	%
Common equity tier 1 capital to risk-weighted assets	$	908,717	13.09	%	$	485,911	7.00	%	$	451,203	6.50	%
Tier 1 capital to average total assets	$	908,717	8.87	%	$	409,855	4.00	%	$	512,319	5.00	%

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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