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ALLOWANCE FOR LOAN AND LEASE LOSSES | 12 Months Ended
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Dec. 31, 2017
ALLOWANCE FOR LOAN AND LEASE LOSSES [Text Block] |
The changes in the allowance for loan and lease losses were as follows:
| Residential |  | Commercial |  | Commercial and |  | Construction |  | Consumer |  |
Year Ended December 31, 2017 | Mortgage Loans |  | Mortgage Loans |  | Industrial Loans |  | Loans |  | Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 33,980 |  | $ | 57,261 |  | $ | 61,953 |  | $ | 2,562 |  | $ | 49,847 |  | $ | 205,603
Charge-offs |  | (28,186) |  |  | (39,092) |  |  | (19,855) |  |  | (3,607) |  |  | (44,030) |  |  | (134,770)
Recoveries |  | 2,437 |  |  | 270 |  |  | 5,755 |  |  | 732 |  |  | 7,562 |  |  | 16,756
Provision |  | 50,744 |  |  | 30,054 |  |  | 1,018 |  |  | 4,835 |  |  | 57,603 |  |  | 144,254
Ending balance | $ | 58,975 |  | $ | 48,493 |  | $ | 48,871 |  | $ | 4,522 |  | $ | 70,982 |  | $ | 231,843
Ending balance: specific reserve for impaired loans | $ | 22,086 |  | $ | 9,783 |  | $ | 12,359 |  | $ | 2,017 |  | $ | 5,165 |  | $ | 51,410
Ending balance: purchased credit-impaired loans (1) | $ | 10,873 |  | $ | 378 |  | $ | - |  | $ | - |  | $ | - |  | $ | 11,251
Ending balance: general allowance | $ | 26,016 |  | $ | 38,332 |  | $ | 36,512 |  | $ | 2,505 |  | $ | 65,817 |  | $ | 169,182
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,290,957 |  | $ | 1,614,972 |  | $ | 2,083,253 |  | $ | 111,397 |  | $ | 1,749,897 |  | $ | 8,850,476
Ending balance: impaired loans | $ | 433,434 |  | $ | 152,914 |  | $ | 118,300 |  | $ | 47,266 |  | $ | 38,394 |  | $ | 790,308
Ending balance: purchased credit-impaired |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
loans | $ | 153,991 |  | $ | 4,183 |  | $ | - |  | $ | - |  | $ | - |  | $ | 158,174
Ending balance: loans with general |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
allowance | $ | 2,703,532 |  | $ | 1,457,875 |  | $ | 1,964,953 |  | $ | 64,131 |  | $ | 1,711,503 |  | $ | 7,901,994
|  | Residential |  | Commercial |  | Commercial and |  | Construction |  | Consumer |  |
Year Ended December 31, 2016 | Mortgage Loans |  | Mortgage Loans |  | Industrial Loans |  | Loans |  | Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 39,570 |  | $ | 68,211 |  | $ | 68,768 |  | $ | 3,519 |  | $ | 60,642 |  | $ | 240,710
Charge-offs |  | (33,621) |  |  | (20,454) |  |  | (26,579) |  |  | (1,770) |  |  | (54,504) |  |  | (136,928)
Recoveries |  | 2,941 |  |  | 816 |  |  | 2,689 |  |  | 316 |  |  | 8,326 |  |  | 15,088
Provision (release) |  | 25,090 |  |  | 8,688 |  |  | 17,075 |  |  | 497 |  |  | 35,383 |  |  | 86,733
Ending balance | $ | 33,980 |  | $ | 57,261 |  | $ | 61,953 |  | $ | 2,562 |  | $ | 49,847 |  | $ | 205,603
Ending balance: specific reserve for impaired loans | $ | 8,633 |  | $ | 26,172 |  | $ | 22,638 |  | $ | 1,405 |  | $ | 5,573 |  | $ | 64,421
Ending balance: purchased credit-impaired loans (1) | $ | 6,632 |  | $ | 225 |  | $ | - |  | $ | - |  | $ | - |  | $ | 6,857
Ending balance: general allowance | $ | 18,715 |  | $ | 30,864 |  | $ | 39,315 |  | $ | 1,157 |  | $ | 44,274 |  | $ | 134,325
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,296,031 |  | $ | 1,568,808 |  | $ | 2,180,455 |  | $ | 124,951 |  | $ | 1,716,628 |  | $ | 8,886,873
Ending balance: impaired loans | $ | 442,267 |  | $ | 194,391 |  | $ | 153,543 |  | $ | 53,291 |  | $ | 44,413 |  | $ | 887,905
Ending balance: purchased credit-impaired |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
loans | $ | 162,676 |  | $ | 3,142 |  | $ | - |  | $ | - |  | $ | - |  | $ | 165,818
Ending balance: loans with general |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
allowance | $ | 2,691,088 |  | $ | 1,371,275 |  | $ | 2,026,912 |  | $ | 71,660 |  | $ | 1,672,215 |  | $ | 7,833,150
(1) | Refer to Note 9 - Loans Held for Investment - PCI Loans for additional information about changes in the allowance for loan losses related to PCI loans.
As described in Note 2 – Natural Disasters A ffecting First BanCorp. in 2017, hurricanes Irma and Maria hit the Eastern Caribbean region an d Puerto Rico in September 2017, affecting the Corporation’s service areas during 2017. These hurricanes caused widespread property damage, flooding, power outages, and water and communication services interruptions, and have severely disrupted normal economic activity in the affected areas. Damages associated with the storm-related events will have significant shor t-term economic repercussions, both positive and negative, for the Corporation’ s commercial and individual loan customers in the most severely affected parts of Puerto Rico and the Virgin Islands. While these events have affected certain asset quality met rics, including higher delinquencies and non-performing loans, the storms’ ultimate effect on loan collections is uncertain. The Corporation’s loan portfolio in Puerto Rico and the Virgin Islands totaled $7.2 billion as of December 31, 2017, or 81% of th e entire portfolio. The composition of these loans generally reflects the composition of the entire portfolio, which is close to 60% of residential and consumer loans to individual customers and 40% of commercial and construction loans. During 2017, m anagement determined a separate qualitative element of the allowance to capture the estimate of inherent losses associated with the effect of Hurricanes Maria and Irma on the Corporation’s loan portfolio in Puerto Rico and Virgin Islands. This estimate is judgmental and subject to changes as conditions evolve. This qualitative element of the allowance was determined based on the estimated effect that the storms could have on current employment levels (e.g., an unemployment rate that significantly increases from current levels in Puerto based on statistics observed in the aftermath of similar natural disasters in the U.S. mainland like Hurricane Katrina), economic activity in the Corporation’s geographic regions, and the time it could take for the affected re gions to return to a more normali zed operating environment. Refer to Note 2 – Natural Disasters Affecting first BanCorp in 2017, for additional information about the impact of Hurricanes Maria and Irma in the Corporation’s financial results. The Corpor ation’s credit risk modeling framework used to determine the storm-related qualitative estimate is similar to the one used for benchmarking purposes as part of the annual Dodd-Frank Act Stress Testing (“DFAST”) regulatory exercise. Models were developed f ollowing a regression modeling approach in which relationships between portfolio-level loss rates and key economic indicators were derived based on historical behavior. These models went through an extensive model specification and selection process that resulted in the use of certain variables, such as the unemployment rate and the Puerto Rico Economic Activity Index, which showed the highest predictive power of potential losses in the Corporation’s outstanding loan portfolio. For large commercial and construction loan relationships, loan officers performed individual reviews of the storms’ effect on these borrowers sources of repayment. These large relationships, that represent 80% of the outstanding balance of the Corporation’s commercial and construc tion loan portfolio, were anal yzed and divided into three storm-affected categories (i.e. Low, M edium, and H igh). Clients categorized as Low had no effect, or relatively insignificant effect, as a result of the storms. Clients in the Medium category had de monstrate d that they have sufficient liquidity to satisfy their obligations, but the complexity of t he insurance claim process may affect their primary or secondary source of repayment. Finally, clients categorized as High could potentially have problems w ith their primary o r secondary sources of repayment as they have a higher degree of uncertainty with respect to the timing of the insurance claim resolution, and the full reestablishment of their business es is highly dependent on the timely receipt of insu rance proceeds. Reserve levels were then recognized for these loan s based on this stratification. For loans in the Low category, no additional qualitative storm-related reserve was calculated. For loans in the Medium and High risk categories, the Corporati on stressed the general reserve loss factors applicable to these loans to reflect higher default probabilities not reflected in the historical data. This review also resulted in downgrades in the credit risk classification of certain loans and their reser ves were determined following the methodology applicable to criticized and adversely classified loans, as appropriate. For commercial and construction loans not individually review ed, as well as residential and consumer loans, the estimated losses associated with the storms was determined following the above-described qualitative storm-related model with resulting loss factors applied to the overall performing balance of each portfolio. The detailed review process applied to commercial and constructions loans was not logistically feasible for the residential mortgage and consumer loans. Residential and consumer loans are underwritten principally on income streams, with collateral viewed as a second source of repayment. The sto rms’ impact varies widely within the residential and consumer portfolio, with some individual borrowers experiencing the devastation of loss of both home and employment and others with both homes and jobs intact. Properties used as collateral generally req uire insurance minimizing the potential loss from property damages. In general, management followed the aforementioned described model for the determination of the qualitative storm- related allowance for these portfolios. As a result of the aforemention ed analyses, the Corporation recorded a provision of $71.3 million in 2017 associated with the storms. As of December 31, 2017, the storm-related allowance was $68.5 million (net of a $2.8 million charge-off taken in the fourth quarter of 2017), composed o f $62.9 million for Puerto Rico and $5.6 million for the Virgin Islands. On a portfolio basis, the storm-related allowance as of December 31, 2017 was composed of: (i) $14.6 million for residential mortgage loans; (ii) $15.9 million for commercial and indu strial loans; (iii) $12.1 million for commercial mortgage loans; (iv) $0.9 million for construction loans; and (v) a $25.0 million for consumer loans. As the Corporation acquires additional information on overall economic prospects in the storm-affected ar eas and the performance of consumer credits that had been under payment deferral programs and obtains further assessments of individual borrowers, the loss estimate will be revised as needed. As of December 31, 2017, the Corporation maintained a $0.7 million reserve for unfunded loan commitments (2016 - $1.6 million), mainly related to outstanding commitments on floor plan revolving lines of credit. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments to borrowers that are experiencing financial difficulties at the balance sheet date. It is calculated by multiplying an estimated loss factor by an estimated probability of funding, and then by the period-end amounts for unfunded commitmen ts. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statements of financial condition and any changes to the reserve is included as part of non-interest expenses in the consolidate d statements of income.

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- Definition The entire disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -URI http://asc.fasb.org/topic&trid=2196771 + Details
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