Banking Activities
Oriental Bank (the “Bank”), the Company’s main subsidiary,
is a full-service Puerto Rico commercial bank with its main office located in
San Juan, Puerto Rico. The Bank has 48 branches throughout Puerto Rico and was
incorporated in October 1964 as a federal mutual savings and loan association.
It became a federal mutual savings bank in July 1983 and converted to a federal
stock savings bank in April 1987. Its conversion from a federally-chartered
savings bank to a commercial bank chartered under the banking law of the Commonwealth
of Puerto Rico, on June 30, 1994, allowed the Bank to more effectively pursue
opportunities in its market and obtain more flexibility in its businesses. As
a Puerto Rico-chartered commercial bank, it is subject to examination by the
FDIC and the Office of the Commissioner of Financial Institutions of Puerto
Rico (the “OCFI”). The Bank offers banking services such as commercial,
consumer, and mortgage lending, savings and time deposit products, financial
planning, and corporate and individual trust services, and capitalizes on its
retail banking network to provide commercial and mortgage lending products to
its clients. The Bank operates two international banking entities (“IBE”)
pursuant to the International Banking Center Regulatory Act of Puerto Rico,
as amended (the “IBE Act”), one is a unit operating within the Bank,
named Oriental Overseas (the “IBE Unit”), and the other is a wholly-owned
subsidiary of the Bank, named Oriental International Bank, Inc. (the “IBE
Subsidiary”). The IBE Unit and IBE Subsidiary offer the Bank certain Puerto
Rico tax advantages, and their services are limited under Puerto Rico law to
persons and assets/liabilities located outside of Puerto Rico.
Banking activities include the Bank’s branches and mortgage banking activities
with traditional retail banking products such as deposits, commercial loans,
consumer loans and mortgage loans. The Bank’s significant lending activities
are with consumers located in Puerto Rico. The Bank’s lending transactions
include a diversified number of industries and activities, all of which are
encompassed within four main categories: commercial, consumer, mortgage and
auto.
Loan Underwriting
Auto loans: The Company provides financing for the purchase of new or used
motor vehicles. These loans are granted mainly through dealers authorized and
approved by the auto credit department committee of the Company. The auto credit
department has the specialized structure and resources to provide the service
required for this product according to market demands and trends. The auto loan
credit policy establishes specific guidance and parameters for the underwriting
and origination processes. Underwriting procedures, lending limits, interest
rate approval, insurance coverage, and automobile brand restrictions are some
parameters and internal controls implemented to ensure the quality and profitability
of the auto loan portfolio. The credit scoring system is a fundamental part
of the decision process.
Consumer loans: Consumer loans include personal loans, credit cards, lines of
credit and other loans made by banks to individual borrowers. All loan originations
must be underwritten in accordance with the Company’s underwriting criteria,
and include an assessment of each borrower’s personal financial condition,
including verification of income, assets, FICO score, and credit reports.
Residential mortgage loans: All loan originations, regardless of whether originated
through the Company’s retail banking network or purchased from third parties,
must be underwritten in accordance with the Company’s underwriting criteria,
including loan-to-value ratios, borrower income qualifications, debt ratios
and credit history, investor requirements, and title insurance and property
appraisal requirements. The Company’s mortgage underwriting standards
comply with the relevant guidelines set forth by the Department of Housing and
Urban Development (“HUD”), VA, FNMA, FHLMC, federal and Puerto Rico
banking regulatory authorities, as applicable. The Company’s underwriting
personnel, while operating within the Company’s loan offices, make underwriting
decisions independent of the Company’s mortgage loan origination personnel.
Wealth Management Activities
Wealth management activities are generated by such businesses as securities
brokerage, trust services, retirement planning, insurance, pension administration,
and other financial services.
Treasury Activities
Treasury activities encompass all of the Company’s treasury-related functions.
The Company’s investment portfolio consists of mortgage-backed securities,
obligations of U.S. government-sponsored agencies, Puerto Rico government and
agency obligations and money market instruments. Agency mortgage-backed securities,
the largest component, consist principally of pools of residential mortgage
loans that are made to consumers and then resold in the form of pass-through
certificates in the secondary market, the payment of interest and principal
of which is guaranteed by GNMA, FNMA or FHLMC.