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FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INSTRUMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS
OFG follows the fair value measurement framework under GAAP.
Fair Value Measurement
The fair value measurement framework defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This framework also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Money market investments
The fair value of money market investments is based on the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.
Investment securities
The fair value of investment securities is based on valuations obtained from an independent pricing provider, ICE Data Pricing (formerly known as IDC) (“ICE”). ICE is a well-recognized pricing company and an established leader in financial information. Such securities are classified as Level 1 or Level 2, depending on the basis for determining fair value. At June 30, 2024, there was one security held-to-maturity, carried at amortized cost with no ACL established, classified as Level 3.
Servicing assets
Servicing assets do not trade in an active market with readily observable prices. Servicing assets are priced using a discounted cash flow model. The valuation model considers servicing fees, portfolio characteristics, prepayment assumptions, delinquency rates, late charges, other ancillary revenues, cost to service, and other economic factors. Due to the unobservable nature of certain valuation inputs, the servicing rights are classified as Level 3.
Foreclosed real estate
Foreclosed real estate includes real estate properties securing residential mortgage and commercial loans. The fair value of foreclosed real estate may be determined using an external appraisal, broker price opinion or an internal valuation. These foreclosed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.
Other repossessed assets
Other repossessed assets are mainly composed of repossessed automobiles. The fair value of the repossessed automobiles may be determined using internal valuation and an external appraisal. These repossessed assets are classified as Level 3 given certain internal adjustments that may be made to external appraisals.
Assets and liabilities measured at fair value on a recurring and non-recurring basis are summarized below:
June 30, 2024
Fair Value Measurements
Level 1Level 2Level 3Total
(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale$200,658 $1,895,648 $— $2,096,306 
Trading securities— 16 — 16 
Money market investments5,083 — — 5,083 
Servicing assets— — 49,789 49,789 
$205,741 $1,895,664 $49,789 $2,151,194 
Non-recurring fair value measurements:
Collateral dependent loans$— $— $13,772 $13,772 
Foreclosed real estate— — 6,526 6,526 
Other repossessed assets— — 5,713 5,713 
Mortgage loans held for sale— — 8,375 8,375 
Other loans held for sale— — 12,361 12,361 
$— $— $46,747 $46,747 
December 31, 2023
Fair Value Measurements
Level 1Level 2Level 3Total
(In thousands)
Recurring fair value measurements:
Investment securities available-for-sale$296,799 $1,802,465 $— $2,099,264 
Trading securities— 13 — 13 
Money market investments4,623 — — 4,623 
Servicing assets— — 49,520 49,520 
$301,422 $1,802,478 $49,520 $2,153,420 
Non-recurring fair value measurements:
Collateral dependent loans$— $— $8,027 $8,027 
Foreclosed real estate— — 10,780 10,780 
Other repossessed assets— — 4,032 4,032 
Other loans held for sale$— $— $28,345 28,345 
$— $— $51,184 $51,184 
The fair value information included in the tables above for non-recurring fair value measurements is not as of period-end. Instead, it is as of the date that the fair value measurement was recorded closest to June 30, 2024 and December 31, 2023, excludes nonrecurring fair value measurements of assets no longer outstanding as of the reporting date.
The tables below present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for June 30, 2024 and 2023:
Level 3 Instruments Only
Quarter Ended June 30,
20242023
Servicing AssetsOther debt securities available for saleServicing AssetsTotal
(In thousands)
Balance at beginning period$49,553 $413 $49,345 $49,758 
New instruments acquired303 — 791 791 
Principal repayments and amortization(732)— (1,085)(1,085)
Gains included in earnings665 — 915 915 
Gains included in other comprehensive income— 7 — 7 
Balance at end of period$49,789 $420 $49,966 $50,386 
Six-Month Period Ended June 30,
20242023
Servicing AssetsOther debt securities available for saleServicing AssetsTotal
(In thousands)
Balance at beginning of period$49,520 $406 $50,921 $51,327 
New instruments acquired830 — 1,365 1,365 
Principal repayments and amortization(1,652)— (2,150)(2,150)
Gains included in earnings
1,091 — (170)(170)
Gains included in other comprehensive income— 14 — 14 
Balance at end of period$49,789 $420 $49,966 $50,386 
Servicing assets gains included in earnings during the quarters and six-month periods ended June 30, 2024 and 2023 were included as mortgage servicing activities in the consolidated statements of operations. For more information on the qualitative information about Level 3 fair value measurements, see Note 7 – Servicing Assets.
There were no liabilities measured at fair value on a recurring basis and non-recurring basis at June 30, 2024 and December 31, 2023. The table below presents quantitative information for all assets measured at fair value on a recurring and non-recurring basis using significant unobservable inputs (Level 3) at June 30, 2024 and December 31, 2023:
June 30, 2024
Fair ValueValuation TechniqueUnobservable InputRangeWeighted Average
(In thousands)
Servicing assets$49,789 Cash flow valuationConstant prepayment rate
1.49% - 11.45%
6.07 %
Discount rate
10.00% - 15.50%
11.45 %
Collateral dependent loans$13,772 Fair value of property
or collateral		Appraised value less disposition costs
10.20% - 33.20%
17.67 %
Foreclosed real estate$6,526 Fair value of property
or collateral		Appraised value less disposition costs
10.00% - 33.00%
10.95 %
Other repossessed assets$5,713 Fair value of property
or collateral		Estimated net realizable value less disposition costs
36.00% - 71.00%
55.48 %
Mortgage loans held for sale$8,375 Market pricesPricing and execution whole loan
92.89% - 101.33%
98.25 %
Other loans held for sale$12,361 Bids or sales contract pricesEstimated market value
100.00% - 104.47%
100.48 %
December 31, 2023
Fair ValueValuation TechniqueUnobservable InputRangeWeighted Average
(In thousands)
Servicing assets$49,520 Cash flow valuationConstant prepayment rate
1.35% - 17.34%
6.12 %
Discount rate
10.00% - 15.50%
11.45 %
Collateral dependent loans$8,027 Fair value of property
or collateral		Appraised value less disposition costs
10.20% - 33.20%
17.00 %
Foreclosed real estate$10,780 Fair value of property
or collateral		Appraised value less disposition costs
10.20% - 33.20%
12.67 %
Other repossessed assets$4,032 Fair value of property
or collateral		Estimated net realizable value less disposition costs
31.00% - 77.00%
57.72 %
Other loans held for sale$28,345 Bids or sales contract pricesEstimated market value
52.00% - 103.20%
84.80%
Information about Sensitivity to Changes in Significant Unobservable Inputs
Servicing assets – The significant unobservable inputs used in the fair value measurement of OFG’s servicing assets are constant prepayment rates and discount rates. Changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or offset the sensitivities. Mortgage banking activities, a component of total banking and financial service revenue in the consolidated statements of operations, include the changes from period to period in the fair value of the mortgage loan servicing rights, which may result from changes in the valuation model inputs or assumptions (principally reflecting changes in discount rates and prepayment speed assumptions) and other changes, including changes due to collection/realization of expected cash flows.
Fair Value of Financial Instruments
The information about the estimated fair value of financial instruments required by GAAP is presented hereunder. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of OFG.
The estimated fair value is subjective in nature, involves uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could affect these fair value estimates. The fair value estimates do not take into consideration the value of future business and the value of assets and liabilities that are not financial instruments. Other significant tangible and intangible assets that are not considered financial instruments include the value of long-term customer relationships of retail deposits, and premises and equipment.
The estimated fair value and carrying value of OFG’s financial instruments at June 30, 2024 and December 31, 2023 was as follows:
June 30, 2024December 31, 2023
Fair
Value		Carrying
Value		Fair
Value		Carrying
Value
(In thousands)
Financial Assets:
Level 1
Cash and cash equivalents$740,429 $740,429 $748,173 $748,173 
Investment securities available-for-sale$200,658 $200,658 $296,799 $296,799 
Level 2
Financial Assets:
Trading securities$16 $16 $13 $13 
Investment securities available-for-sale$1,895,648 $1,895,648 $1,802,465 $1,802,465 
Investment securities held-to-maturity$244,365 $303,621 $455,709 $514,024 
Federal Home Loan Bank (FHLB) stock$15,280 $15,280 $14,488 $14,488 
Equity securities$25,794 $25,794 $23,981 $23,981 
Level 3
Financial Assets:
Investment securities held-to-maturity$35,072 $35,000 $35,055 $35,000 
Total loans (including loans held-for-sale)$7,410,349 $7,503,142 $7,282,214 $7,401,618 
Accrued interest receivable$72,969 $72,969 $71,400 $71,400 
Servicing assets$49,789 $49,789 $49,520 $49,520 
Accounts receivable and other assets$56,760 $56,760 $47,859 $47,589 
Financial Liabilities:
Deposits$9,622,547 $9,605,250 $9,767,068 $9,762,169 
Advances from FHLB$198,937 $200,741 $199,184 $200,768 
Other borrowings$— $— $2 $2 
Accrued expenses and other liabilities$140,410 $140,410 $115,985 $115,985 
The following methods and assumptions were used to estimate the fair values of significant financial instruments at June 30, 2024 and December 31, 2023:
•Cash and cash equivalents (including money market investments and time deposits with other banks), accrued interest receivable, accounts receivable and other assets, accrued expenses and other liabilities, and other borrowings have been valued at the carrying amounts reflected in the consolidated statements of financial condition as these are reasonable estimates of fair value given the short-term nature of the instruments.
•Investments in FHLB stock are valued at their redemption value.
•The fair value of investment securities, including trading securities, is based on quoted market prices, when available or prices provided from contracted pricing providers, or market prices provided by recognized broker-dealers. If listed prices or quotes are not available, fair value is based upon externally developed models that use both observable and unobservable inputs depending on the market activity of the instrument. The estimated fair value of the AFICA bond in other debt securities held-to-maturity is determined by using a detailed discounted cash flow valuation model to calculate the present value of projected future cash flows. The credit losses are recorded using the ACL methodology. This involves comparing the amortized cost of the securities with the fair value of the expected future cash flows. Several assumptions requiring a high degree of judgment include the selection of market discount rates, the determination of current credit spread, and the estimation of both the probability of default and loss given default rates. Equity securities do not have readily available fair values and are measured at cost, less any impairment.
•The fair value of servicing asset is estimated by using a cash flow valuation model, which calculates the present value of estimated future net servicing cash flows, taking into consideration actual and expected loan prepayment rates, discount rates, servicing costs, and other economic factors, which are determined based on current market conditions.
•The fair value of the loan portfolio (including loans held-for-sale and non-performing loans) is based on the exit market price, which is estimated by segregating by loan type, such as mortgage, commercial, consumer and auto. The fair value is calculated by discounting contractual cash flows. The discount rate used in such calculation considers a capital adjustment as well as other premiums for systemic risk, servicing costs, modeling and uncertainty risk, and impairment uncertainty.

•The fair value of demand deposits and savings accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is based on the discounted value of the contractual cash flows, using estimated current market discount rates for deposits of similar remaining maturities.

•The fair value of long-term borrowings, including advances from FHLB, is based on the discounted value of the contractual cash flows using current estimated market discount rates for borrowings with similar terms, remaining maturities and put dates.