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LOANS PORTFOLIO
 12 Months Ended
Dec. 31, 2017
LOAN PORTFOLIO [Text Block]

NOTE 9 – LOANS HELD FOR INVESTMENT

The following provides information about the loan portfolio held for investment:

As ofAs of
December 31, December 31,
20172016
(In thousands)
Residential mortgage loans, mainly secured by first mortgages $3,290,957$3,296,031
Commercial loans:
Construction loans 111,397124,951
Commercial mortgage loans 1,614,9721,568,808
Commercial and Industrial loans (1) 2,083,2532,180,455
Total commercial loans3,809,6223,874,214
Finance leases257,462233,335
Consumer loans1,492,4351,483,293
Loans held for investment8,850,4768,886,873
Allowance for loan and lease losses(231,843)(205,603)
Loans held for investment, net $8,618,633$8,681,270
(1)As of December 31, 2017 and 2016, includes $833.5 million and $853.9 million, respectively, of commercial loans that are secured by real estate but are not dependent upon the real estate for repayment.

As of December 31, 2017 and 2016, the Corporation had net deferred origination costs on its loan portfolio amounting to $4.0 million and $4.8 million, respectively. The total loan portfolio is net of unearned income of $38.6 million and $32.8 million as of December 31, 2017 and 2016, respectively.

As of December 31, 2017, the Corporation was servicing residential mortgage loans owned by others aggregating $2.8 billion (2016 — $2.7 billion), and commercial loan participations owned by others amounted to $361.3 million as of December 31, 2017 (2016 — $401.4 million).

Various loans, mainly secured by first mortgages, were assigned as collateral for CDs, individual retirement accounts, and advances from the FHLB. Total loans pledged as collateral amounted to $1.9 billion as of December 31, 2017 (2016 — $2.0 billion).

Loans held for investment on which accrual of interest income had been discontinued were as follows:
As ofAs of
December 31, December 31,
20172016
(In thousands)
Non-performing loans:
Residential mortgage$178,291$160,867
Commercial mortgage156,493178,696
Commercial and Industrial85,839146,599
Construction:
Land15,02611,026
Construction-commercial 35,10036,893
Construction-residential1,9871,933
Consumer:
Auto loans10,21114,346
Finance leases1,2371,335
Other consumer loans5,3708,399
Total non-performing loans held for investment (1)(2)(3)$489,554$560,094
________________
(1)Excludes $8.3 million and $8.1 million of non-performing loans held for sale as of December 31, 2017 and 2016, respectively.
(2)Amount excludes PCI loans with a carrying value of approximately $158.2 million and $165.8 million as of December 31, 2017 and 2016, respectively, primarily mortgage loans acquired from Doral Bank in the first quarter of 2015 and from Doral Financial in the second quarter of 2014, as further discussed below. These loans are not considered non-performing due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using an estimated cash flow analysis.
(3)Non-performing loans exclude $374.7 million and $384.9 million of TDR loans that are in compliance with the modified terms and in accrual status as of December 31, 2017 and 2016, respectively.

If these loans were accruing interest, the additional interest income realized would have been $35.2 million (2016— $43.2 million; 2015 — $37.8 million).

Loans in Process of Foreclosure

As of December 31, 2017, the recorded investment of residential mortgage loans collateralized by residential real estate property that are in the process of foreclosure amounted to $162.2 million, including $23.6 million of loans insured by the FHA or guaranteed by the VA, and $20.5 million of PCI loans. The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent in accordance with the guidelines of the Consumer Financial Protection Bureau (CFPB). Foreclosure procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Judicial states (Puerto Rico, Florida and USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (BVI) is processed without court intervention. Foreclosure timelines vary according to state law and investor guidelines. Occasionally, foreclosures may be delayed due to mandatory mediations, bankruptcy, court delays and title issues, among other reasons.

The Corporation’s aging of the loans held-for-investment portfolio is as follows:
As of December 31, 201730-59 Days Past Due60-89 Days Past Due90 days or more Past Due (1)Total Past Due Purchased Credit-Impaired Loans Current Total loans held for investment90 days past due and still accruing (2) (3)
(In thousands)
Residential mortgage:
FHA/VA and other government-guaranteed
loans (2) (3) (4)$-$6,792$102,815$109,607$-$29,332$138,939$102,815
Other residential mortgage loans (4)-92,502193,750286,252153,9912,711,7753,152,01815,459
Commercial:
Commercial and Industrial loans8,97157688,15697,703-1,985,5502,083,2532,317
Commercial mortgage loans (4)-7,525163,180170,7054,1831,440,0841,614,9726,687
Construction:
Land (4)-12415,17715,301-11,63026,931151
Construction-commercial --35,10035,100-41,45676,556-
Construction-residential-951,9872,082-5,8287,910-
Consumer:
Auto loans57,56023,78310,21191,554-752,777844,331-
Finance leases10,5493,4841,23715,270-242,192257,462-
Other consumer loans10,7765,0529,36125,189-622,915648,1043,991
Total loans held for investment$87,856$139,933$620,974$848,763$158,174$7,843,539$8,850,476$131,420
(1)Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.
(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $29.9 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2017.
(3)As of December 31, 2017, includes $62.1 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.
(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, and land loans past due 30-59 days as of December 31, 2017 amounted to $6.0 million, $224.0 million, $9.0 million, and $2.5 million, respectively.

As of December 31, 201630-59 Days Past Due60-89 Days Past Due90 days or more Past Due (1)Total Past Due Purchased Credit-Impaired Loans Current Total loans held for investment90 days past due and still accruing (2) (3)
(In thousands)
Residential mortgage:
FHA/VA and other government-guaranteed
loans (2) (3) (4)$-$5,179$77,052$82,231$-$44,627$126,858$77,052
Other residential mortgage loans (4)-94,004177,568271,572162,6762,734,9253,169,17316,701
Commercial:
Commercial and Industrial loans14,1953,724151,967169,886-2,010,5692,180,4555,368
Commercial mortgage loans (4)-4,534181,977186,5113,1421,379,1551,568,8083,281
Construction:
Land (4) -43611,50411,940-19,82631,766478
Construction-commercial--36,89336,893-40,58277,475-
Construction-residential (4) --1,9331,933-13,77715,710-
Consumer:
Auto loans57,14213,52314,34685,011-762,947847,958-
Finance leases7,7141,6711,33510,720-222,615233,335-
Other consumer loans7,6755,25412,32825,257-610,078635,3353,929
Total loans held for investment$86,726$128,325$666,903$881,954$165,818$7,839,101$8,886,873$106,809
(1)Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.
(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $29.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2016.
(3)As of December 31, 2016, includes $43.7 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.
(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, land loans, and construction-residential loans past-due 30-59 days as of December 31, 2016 amounted to $9.9 million, $142.8 million, $4.6 million, $0.7 million, and $0.4 million, respectively.

In working with borrowers in the Virgin Islands and Puerto Rico affected by Hurricanes Irma and Maria, which made landfall on September 6, 2017 and September 20, 2017, respectively, the Corporation provided three-month deferred repayment arrangements to consumer borrowers (i.e., personal loans, auto loans, finance leases and credit cards) who were current in their payments or no more than 2 payments in arrears as of the date of the respective hurricane. For residential mortgage loans, the Corporation entered during the third and fourth quarters of 2017 into deferred payment arrangements on 9,588 residential mortgages totaling $1.3 billion as of December 31, 2017 that provided for a three-month payment deferral for those loans current or no more than 2 payments in arrears as of the date of the event. For both consumer and residential mortgage loans subject to the deferral programs, each borrower is required to begin making their regularly scheduled loan payment at the end of the deferral period (January 2018) and the deferred amounts were moved to the end of the loan. The payment deferral programs were applied prospectively from the date of the events and did not change the delinquency status of the loans as of such dates. For commercial and construction loans, the Corporation, on a case by case basis, entered into three-month deferral arrangements for the payment of principal. The Corporation entered into deferral programs related to 351 commercial and construction loans totaling $1.2 billion as of December 31, 2017, with customers that were current in their payments at the date of the event. As of December 31, 2017, residential mortgage and commercial and construction loans in early delinquency (i.e., 30-89 days past due as defined in regulatory report instructions) include $95.1 million and $3.2 million, respectively, of loans subject to the storm-related deferral programs established in Puerto Rico and the Virgin Islands.

The Corporation’s credit quality indicators by loan type as of December 31, 2017 and 2016 are summarized below:
Commercial Credit Exposure-Credit Risk Profile based on Creditworthiness Category:
SubstandardDoubtfulLossTotal Adversely Classified (1)Total Portfolio
December 31, 2017
(In thousands)
Commercial Mortgage$257,503$4,166$-$261,669$1,614,972
Construction:
Land15,971490-16,46126,931
Construction-commercial35,100--35,10076,556
Construction-residential1,987--1,9877,910
Commercial and Industrial154,4163,854676158,9462,083,253
Commercial Credit Exposure-Credit Risk Profile based on Creditworthiness Category:
SubstandardDoubtfulLossTotal Adversely Classified (1)Total Portfolio
December 31, 2016
(In thousands)
Commercial Mortgage$193,391$35,416$-$228,807$1,568,808
Construction:
Land19,345--19,34531,766
Construction-commercial36,893--36,89377,475
Construction-residential1,933--1,93315,710
Commercial and Industrial133,59967,996784202,3792,180,455
(1)Excludes $8.3 million and $8.1 million of non-performing loans held for sale as of December 31, 2017 and 2016, respectively.

The Corporation considers a loan as adversely classified if its risk rating is Substandard, Doubtful, or Loss. These categories are defined as follows:

Substandard - A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Doubtful classifications have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. A Doubtful classification may be appropriate in cases where significant risk exposures are perceived, but loss cannot be determined because of specific reasonable pending factors, which may strengthen the credit in the near term.

Loss - Assets classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.

December 31, 2017Consumer Credit Exposure-Credit Risk Profile Based on Payment Activity
Residential Real-EstateConsumer
FHA/VA/ Guaranteed (1)Other residential loansAutoFinance LeasesOther Consumer
(In thousands)
Performing$138,939$2,819,736$834,120$256,225$642,734
Purchased Credit-Impaired (2)-153,991---
Non-performing-178,29110,2111,2375,370
Total$138,939$3,152,018$844,331$257,462$648,104
(1)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. This balance includes $29.9 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2017.
(2)PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses.
December 31, 2016Consumer Credit Exposure-Credit Risk Profile Based on Payment Activity
Residential Real-EstateConsumer
FHA/VA/ Guaranteed (1)Other residential loansAutoFinance LeasesOther Consumer
(In thousands)
Performing$126,858$2,845,630$833,612$232,000$626,936
Purchased Credit-Impaired (2)-162,676---
Non-performing-160,86714,3461,3358,399
Total$126,858$3,169,173$847,958$233,335$635,335
(1)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. This balance includes $29.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA that are over 15 months delinquent, and are no longer accruing interest as of December 31, 2016.
(2)PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analyses.

The following tables present information about impaired loans, excluding PCI loans, which are reported separately, as discussed below:

Impaired Loans
Recorded InvestmentUnpaid Principal BalanceRelated Specific AllowanceAverage Recorded InvestmentInterest Income Recognized on Accrual BasisInterest Income Recognized on Cash Basis
(In thousands)
As of December 31, 2017
With no related specific allowance recorded:
FHA/VA-Guaranteed loans$ - $ - $-$-$-$-
Other residential mortgage loans116,818154,048-120,2412,7971,267
Commercial:
Commercial mortgage loans65,100100,612-86,563720277
Commercial and Industrial
loans28,29231,254-28,56765917
Construction:
Land4849-48-1
Construction-commercial------
Construction-residential------
Consumer:
Auto loans267267-2903-
Finance leases------
Other consumer loans2,5213,688-2,74515865
$213,046$289,918$-$238,454$4,337$1,627
With a related specific allowance recorded:
FHA/VA-Guaranteed loans$ - $-$-$-$-$-
Other residential mortgage loans316,616349,28422,086318,60614,5191,211
Commercial:
Commercial mortgage loans87,814124,0849,78393,7201,263113
Commercial and Industrial
loans90,008112,00512,35992,666788386
Construction:
Land11,86519,9731,40214,12637237
Construction-commercial35,10138,59556035,996--
Construction-residential25235555252--
Consumer:
Auto loans22,33822,3383,66524,3281,778-
Finance leases2,1842,1841042,428168-
Other consumer loans11,08411,8301,39611,5791,01879
$577,262$680,648$51,410$593,701$19,906$1,826
Total:
FHA/VA-Guaranteed loans$-$-$-$-$-$-
Other residential mortgage loans433,434503,33222,086438,84717,3162,478
Commercial:
Commercial mortgage loans152,914224,6969,783180,2831,983390
Commercial and Industrial
loans118,300143,25912,359121,2331,447403
Construction:
Land11,91320,0221,40214,17437238
Construction-commercial35,10138,59556035,996--
Construction-residential25235555252--
Consumer:
Auto loans22,60522,6053,66524,6181,781-
Finance leases2,1842,1841042,428168-
Other consumer loans13,60515,5181,39614,3241,176144
$790,308$970,566$51,410$832,155$24,243$3,453

Recorded InvestmentUnpaid Principal BalanceRelated Specific AllowanceAverage Recorded InvestmentInterest Income Recognized Accrual BasisInterest Income Recognized Cash Basis
(In thousands)
As of December 31, 2016
With no related specific allowance recorded:
FHA/VA-Guaranteed loans$-$-$-$-$-$-
Other residential mortgage loans67,99682,602-71,003741731
Commercial:
Commercial mortgage loans72,62091,685-80,713940550
Commercial and Industrial
loans14,65624,642-17,20942-
Construction:
Land180233-21222
Construction-commercial------
Construction-residential9561,531-956--
Consumer:
Auto loans599599-6157-
Finance leases9494-951-
Other consumer loans4,5165,876-4,696233106
$161,617$207,262$-$175,499$1,966$1,389
With a related specific allowance recorded:
FHA/VA-Guaranteed loans$-$-$-$-$-$-
Other residential mortgage loans374,271423,6488,633380,27317,7511,503
Commercial:
Commercial mortgage loans121,771133,88326,172122,609463173
Commercial and Industrial
loans138,887165,39922,638149,1535891,287
Construction:
Land14,87019,91894715,58916849
Construction-commercial36,89338,72132438,191--
Construction-residential392551134392--
Consumer:
Auto loans24,27624,2763,71726,5621,813-
Finance leases2,5532,553712,751202-
Other consumer loans12,37512,7341,78513,3221,14348
$726,288$821,683$64,421$748,842$22,129$3,060
Total:
FHA/VA-Guaranteed loans$-$-$-$-$-$-
Other residential mortgage loans442,267506,2508,633451,27618,4922,234
Commercial:
Commercial mortgage loans194,391225,56826,172203,3221,403723
Commercial and Industrial
loans153,543190,04122,638166,3626311,287
Construction:
Land15,05020,15194715,80117051
Construction-commercial36,89338,72132438,191--
Construction-residential1,3482,0821341,348--
Consumer:
Auto loans24,87524,8753,71727,1771,820-
Finance leases2,6472,647712,846203-
Other consumer loans16,89118,6101,78518,0181,376154
$887,905$1,028,945$64,421$924,341$24,095$4,449

The following tables show the activity for impaired loans and the related specific reserve for 2017, 2016 and 2015:
201720162015
(In thousands)
Impaired Loans:
Balance at beginning of year$887,905$806,509$945,407
Loans determined impaired during the year140,977288,202160,837
Charge-offs (1)(82,113)(67,210)(99,023)
Loans sold, net of charge-offs(53,245)(8,675)(67,836)
Reclassification from loans held for sale--40,005
Increases to existing impaired loans8,2923,2363,340
Foreclosures(37,513)(36,161)(57,728)
Loans no longer considered impaired(3,526)(27,643)(46,489)
Paid in full or partial payments(70,469)(70,353)(72,004)
Balance at end of year$790,308$887,905$806,509
(1)For the year ended December 31, 2017, includes a charge-off of $10.7 million related to the sale of the PREPA credit line, as further discussed below. For the year ended December 31, 2016, includes $4.2 million of charge-offs related to impaired loans included in a sale of a $16.3 million pool of non-performing assets and, for the year ended December 31, 2015, includes $63.9 million of charge-offs related to a bulk sales of assets, as further discussed below.

(In thousands)201720162015
Specific Reserve:
Balance at beginning of year$64,421$52,581$55,205
Provision for loan losses68,37578,69591,515
Net charge-offs(81,386)(66,855)(94,139)
Balance at end of year$51,410$64,421$52,581

PCI Loans

The Corporation acquired PCI loans accounted for under ASC 310-30 as part of the transaction that closed on February 27, 2015 in which FirstBank acquired 10 Puerto Rico banking branches of Doral Bank, and acquired certain assets, including PCI loans, and assumed deposits, through an alliance with Banco Popular of Puerto Rico, which was the successful lead bidder with the FDIC on the failed Doral Bank, as well as other co-bidders. The Corporation also acquired PCI loans in previously completed asset acquisitions that are accounted for under ASC 310-30. These previous transactions include the acquisition from Doral Financial in the second quarter of 2014 of all its rights, title and interest in first and second residential mortgage loans in full satisfaction of secured borrowings owed by such entity to FirstBank.

Under ASC 310-30, the acquired PCI loans were aggregated into pools based on similar characteristics (i.e., delinquency status and loan terms). Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Since the loans are accounted for by the Corporation under ASC 310-30, they are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation recognizes additional losses on this portfolio when it is probable that the Corporation will be unable to collect all cash flows expected as of the acquisition date plus additional cash flows expected to be collected arising from changes in estimates after the acquisition date.

The carrying amount of PCI loans follows:
As ofAs of
December 31, December 31,
20172016
(In thousands)
Residential mortgage loans$153,991$162,676
Commercial mortgage loans4,1833,142
Total PCI loans$158,174$165,818
Allowance for loan losses(11,251)(6,857)
Total PCI loans, net of allowance for loan losses$146,923$158,961

The following tables present PCI loans by past due status as of December 31, 2017 and 2016:
As of December 31, 201730-59 Days 60-89 Days 90 days or more Total Past Due Total PCI loans
Current
(In thousands)
Residential mortgage loans$-$16,600$26,471$43,071$110,920$153,991
Commercial mortgage loans -3552,8343,1899944,183
Total (1)$-$16,955$29,305$46,260$111,914$158,174
_____________
(1)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage and commercial mortgage loans are considered past due when the borrower is in arrears two or more monthly payments. PCI residential mortgage loans and commercial mortgage loans past due 30-59 days as of December 31, 2017 amounted to $28.1 million and $0.2 million, respectively.
As of December 31, 201630-59 Days 60-89 Days 90 days or more Total Past Due Total PCI loans
Current
(In thousands)
Residential mortgage loans $-$11,892$27,849$39,741$122,935$162,676
Commercial mortgage loans -3551,1501,5051,6373,142
Total (1)$-$12,247$28,999$41,246$124,572$165,818
_____________
(1)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage and commercial mortgage loans are considered past due when the borrower is in arrears two or more monthly payments. PCI residential mortgage loans and commercial mortgage loans past due 30-59 days as of December 31, 2016 amounted to $22.3 million and $0.1 million, respectively.

Initial Fair Value and Accretable Yield of PCI Loans

At acquisition, the Corporation estimated the cash flows the Corporation expected to collect on PCI loans. Under the accounting guidance for PCI loans, the difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. This difference is neither accreted into income nor recorded on the Corporation’s consolidated statements of financial condition. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans, using the effective-yield method.

Changes in Accretable Yield of Acquired Loans

Subsequent to the acquisition of loans, the Corporation is required to periodically evaluate its estimate of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Subsequent changes in the estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications from non-accretable yield to accretable yield. Increases in the cash flows expected to be collected will generally result in an increase in interest income over the remaining life of the loan or pool of loans. Decreases in expected cash flows due to further credit deterioration will generally result in an impairment charge recognized in the Corporation’s provision for loan and lease losses, resulting in an increase to the allowance for loan and lease losses. During 2017, the Corporation increased by $4.4 million to $11.3 million the reserve related to PCI loans acquired from Doral Financial in 2014 and from Doral Bank in 2015. The reserve is driven by the revisions to the expected cash flows of the portfolio for the remaining term of the loan pool based on expected performance and market conditions. Approximately $1.8 million of the increase was associated with qualitative adjustments to the expected cash flows that account for the estimated impact Hurricane Maria could have on the PCI portfolio; considering the loans historical-deteriorated credit conditions and their higher susceptibility to adverse macroeconomic effects.

Changes in the accretable yield of PCI loans for the years ended December 31, 2017 and 2016 were as follows:
December 31, 2017December 31, 2016
(In thousands)
Balance at beginning of year$116,462$118,385
Accretion recognized in earnings(10,810)(11,533)
Reclassification (to) from non-accretable(1,970)9,610
Balance at end of period$103,682$116,462

Changes in the carrying amount of loans accounted for pursuant to ASC 310-30 follows:
Year ended Year ended
December 31, 2017December 31, 2016
(In thousands)
Balance at beginning of year$165,818$173,913
Accretion 10,81011,533
Collections (15,400)(17,184)
Foreclosures(3,054)(2,444)
Ending balance $158,174$165,818
Allowance for loan losses(11,251)(6,857)
Ending balance, net of allowance for loan losses$146,923$158,961

Changes in the allowance for loan losses related to PCI loans follows:
Year ended
December 31, 2017December 31, 2016
Balance at beginning of year$6,857$3,962
Provision for loan losses4,3942,895
Balance at end of period$11,251$6,857

The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $196.6 million as of December 31, 2017 (December 31, 2016- $207.3 million).

Purchases and Sales of Loans

During 2017, the Corporation purchased $58.9 million of residential mortgage loans consistent with a strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. Generally, the loans purchased from mortgage bankers were conforming residential mortgage loans. Purchases of conforming residential mortgage loans provide the Corporation the flexibility to retain or sell the loans, including through securitization transactions, depending upon the Corporation’s interest rate risk management strategies. When the Corporation sells such loans, it generally keeps the servicing of the loans.

In the ordinary course of business, the Corporation sells residential mortgage loans (originated or purchased) to GNMA and GSEs such as FNMA and FHLMC, which generally securitize the transferred loans into mortgage-backed securities for sale into the secondary market. The Corporation sold $235.1 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities. Also during 2017, the Corporation sold approximately $87.5 million of performing residential mortgage loans to FNMA and FHLMC. The Corporation’s continuing involvement in these sold loans consists primarily of servicing the loans. In addition, the Corporation agrees to repurchase loans when it breaches any of the representations and warranties included in the sale agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines (i.e., ensuring that the mortgage was properly underwritten according to established guidelines).

For loans sold to GNMA, the Corporation holds an option to repurchase individual delinquent loans issued on or after January 1, 2003 when the borrower fails to make any payment for three consecutive months. This option gives the Corporation the ability, but not the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA.

Under ASC Topic 860, Transfer and Servicing, once the Corporation has the unilateral ability to repurchase the delinquent loan, it is considered to have regained effective control over the loan and is required to recognize the loan and a corresponding repurchase liability on the balance sheet regardless of the Corporation’s intent to repurchase the loan. As of December 31, 2017 and 2016, rebooked GNMA delinquent loans included in the Corporation’s residential mortgage loan portfolio amounted to $62.1 million and $43.7 million, respectively.

During 2017, 2016, anfd 2015, the Corporation repurchased, pursuant to its repurchase option with GNMA, $25.1 million, $29.1 million, and $19.2 million, respectively, of loans previously sold to GNMA. The principal balance of these loans is fully guaranteed and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent interest payment advanced to GNMA computed at the loan’s interest rate and the interest payments reimbursed by the FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA. During the fourth quarter of 2017, the Corporation requested and received approval from GNMA for the exclusion of loans in the areas affected by Hurricanes Irma and Maria from calculations of delinquency and default ratios established in the GNMA Mortgage-Backed Securities Guide. The Corporation generally remediates any breach of representations and warranties related to the underwriting of such loans according to established GNMA guidelines without incurring losses. The Corporation does not maintain a liability for estimated losses as a result of breaches in representations and warranties.

Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation repurchased at par loans previously sold to FNMA and FHLMC in the amounts of $36 thousand, $0.7 million, and $1.4 million during 2017, 2016, and 2015, respectively. The Corporation’s risk of loss with respect to these loans is also minimal as these repurchased loans are generally performing loans with documentation deficiencies. No losses related to breaches of representations and warranties were incurred in 2017. Historically, losses experienced on these loans have been immaterial. As a consequence, as of December 31, 2017, the Corporation does not maintain a liability for estimated losses on loans expected to be repurchased as a result of breaches in loan and servicer representations and warranties.

In addition, during 2017, the Corporation purchased $52.6 million in commercial and industrial loan participations. Also, during 2016, and 2015, the Corporation sold $20.2 million and $20.0 million of commercial mortgage loan participations, respectively.

Sale of the Puerto Rico Electric Power Authority (PREPA) Loan

 

During the first quarter of 2017, the Corporation received an unsolicited offer for, and sold, its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government.  A specific reserve of approximately $10.2 million had been allocated to this loan.  Gross proceeds of $53.2 million from the sale resulted in an incremental loss of $0.6 million recorded as a charge to the provision for loan and lease losses in 2017.

Sale of a $16.3 Million Pool of Non-Performing Assets

During the fourth quarter of 2016, the Corporation completed the sale of a pool of non-performing assets with a book value of $16.3 million (principal balance of $20.1 million), in a cash transaction. The proceeds from this sale were $11.3 million net of escrows and principal and interest collected on behalf of the purchaser subsequent to the effective date of the transaction. Approximately $2.8 million of reserves had been allocated to the loans. This transaction resulted in total net charge-offs of $4.6 million and an incremental pre-tax loss of $1.8 million recorded as a charge to the provision for loan and lease losses in 2016.

Bulk Sale of Assets

During the second quarter of 2015, the Corporation completed the sale of commercial and construction loans with a book value of $147.5 million ($90.7 million of commercial mortgage loans, $45.8 million of commercial and industrial, and $11.0 million of construction loans), comprised mostly of non-performing and adversely classified loans, as well as OREO properties with a book value of $2.9 million, in a cash transaction. The sale price of this bulk sale was $87.3 million. Approximately $15.3 million of reserves had been allocated to the loans. This transaction resulted in total charge-offs of $61.4 million and an incremental pre-tax loss of $48.7 million recorded in 2015, including $0.9 million in professional service fees directly attributable to the bulk sale.

Loan Portfolio Concentration

The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, also lends in the USVI and BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment of $8.9 billion as of December 31, 2017, approximately 75% have credit risk concentration in Puerto Rico, 19% in the United States, and 6% in the USVI and BVI.

As of December 31, 2017, the Corporation had $55.9 million of outstanding loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $133.6 million as of December 31, 2016. As mentioned above, during the first quarter of 2017, the Corporation received an unsolicited offer for, and sold, its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (with a principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government. Approximately $33.9 million of the outstanding loans as of December 31, 2017 consisted of loans extended to municipalities in Puerto Rico, which in most cases are supported by assigned property tax revenues.  The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of the Puerto Rico central government. These municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and notes. Late in 2015, the GDB and the Municipal Revenue Collection Center (“CRIM”) signed and perfected a deed of trust. Through this deed, the GDB, as fiduciary, is required to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another commercial depository financial institution in Puerto Rico. Approximately $6.8 million of the outstanding loans as of December 31, 2017 consisted of a loan to a unit of the central government, and approximately $15.1 million consisted of a loan to an affiliate of PREPA.

Furthermore, as of December 31, 2017, the Corporation had three commercial mortgage loans granted to the hotel industry in Puerto Rico that were previously guaranteed by the Puerto Rico Tourism Development Fund (“TDF”) with an outstanding principal balance of $120.2 million (book value of $70.8 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. Historically, the borrower and the operations of the underlying collateral of these loans have been the primary sources of repayment and the TDF, which is a subsidiary of the GDB, provided a secondary guarantee for payment performance.  As part of agreements executed in the second quarter of 2017 and first quarter of 2018, the TDF paid $7.6 million and $4.0 million, respectively, to honor a portion of its guarantee on these loans.   As provided in the agreements, the cash payments received by the Corporation released the TDF from its liability as a guarantor of these loans. As a result, the income-producing real estate properties are now the only collateral of such loans, thus, any decline in collateral valuations may require additional impairments on these loans.  All the three TDF commercial mortgage loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $4.7 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During 2017, the Corporation recorded charge-offs totaling $30.8 million on these facilities for the portion of the recorded investment in excess of the fair value of the collateral and the guarantee, considering the aforementioned agreements reached with the TDF.  In addition, GDB agreed to issue to the Bank a fixed income financial instrument pursuant to the GDB’s Restructuring Support Agreement approved by the PROMESA oversight board. As of December 31, 2017, the non-performing TDF commercial mortgage loans and related facilities are being carried (net of reserves and accumulated charge-offs) at 52% of the unpaid principal balance.

In addition, the Corporation had $116.5 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority (the “PRHFA”). Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and the guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75 million of the principal under the mortgage loan insurance program. According to the most recently released audited financial statements of the PRHFA, as of June 30, 2015, the PRHFA’s mortgage loan insurance program covered loans in an aggregate of approximately $552 million. The regulations adopted by the PRHFA require the establishment of adequate reserves to guarantee the solvency of the mortgage loan insurance fund. As of June 30, 2015, the most recent date as to which information is available, the PRHFA had a restricted net position for such purposes of approximately $77.4 million.

The Corporation also has credit exposure to USVI government entities. As of December 31, 2017, the Corporation had $70.4 million in loans to USVI government instrumentalities and public corporations, compared to $84.7 million as of December 31, 2016. Of the amount outstanding as of December 31, 2017, approximately $47.2 million was owed by public corporations of the USVI and $23.2 million was owed by an independent instrumentality of the USVI government.  All loans are currently performing and up to date on principal and interest payments.

 

The Corporation cannot predict at this time the impact that the current fiscal situation of the Commonwealth of Puerto Rico, the uncertainty about the debt restructuring process, and the various legislative and other measures adopted and to be adopted by the Puerto Rico government and the PROMESA oversight board in response to such fiscal situation and Hurricanes Irma and Maria will have on the Puerto Rico economy, the Corporation’s clients, and the Corporation’s financial condition and results of operations. Refer to Note 10 – Allowance for Loan and Lease Losses, for additional information about the Corporation’s estimate of losses related to the impact of Hurricanes Irma and Maria in 2017.

Troubled Debt Restructurings

The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines. Depending upon the nature of borrowers’ financial condition, restructurings or loan modifications through this program as well as other restructurings of individual commercial, commercial mortgage, construction, and residential mortgage loans fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include, among others, the extension of the maturity of the loan and modifications of the loan rate. As of December 31, 2017, the Corporation’s total TDR loans held for investment of $587.2 million consisted of $363.9 million of residential mortgage loans, $94.1 million of commercial and industrial loans, $50.8 million of commercial mortgage loans, $41.8 million of construction loans, and $36.6 million of consumer loans. Outstanding unfunded commitments on TDR loans amounted to $9.4 million as of December 31, 2017.

The Corporation’s loss mitigation programs for residential mortgage and consumer loans can provide for one or a combination of the following: movement of interest past due to the end of the loan, extension of the loan term, deferral of principal payments and reduction of interest rates either permanently or for a period of up to six years (increasing back in step-up rates). Additionally, in certain cases, the restructuring may provide for the forgiveness of contractually due principal or interest. Uncollected interest is added to the end of the loan term at the time of the restructuring and not recognized as income until collected or when the loan is paid off. These programs are available only to those borrowers who have defaulted, or are likely to default, permanently on their loan and would lose their homes in a foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, properties are foreclosed.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers. Trial modifications generally represent a six-month period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification. TDR loans that are participating in or that have been offered a binding trial modification are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. As of December 31, 2017, the Corporation classified an additional $0.8 million of residential mortgage loans as TDRs that were participating in or had been offered a trial modification.

For the commercial real estate, commercial and industrial, and construction loan portfolios, at the time of a restructuring, the Corporation determines, on a loan-by-loan basis, whether a concession was granted for economic or legal reasons related to the borrower’s financial difficulty. Concessions granted for commercial loans could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that would be considered a concession. The Corporation mitigates loan defaults for its commercial loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of commercial loans. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the Corporation’s Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO.

In addition, the Corporation extends, renews, and restructures loans with satisfactory credit profiles. Many commercial loan facilities are structured as lines of credit, which primarily have one year terms and, therefore, are required to be renewed annually. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, timing of completion of projects, and other factors. If the borrower is not deemed to have financial difficulties, extensions, renewals, and restructurings are done in the normal course of business and are not considered to be concessions, and the loans continue to be recorded as performing.

Loans subject to the previously described three-month payment deferral programs established by the Corporation in 2017 to assist individuals and businesses affected by Hurricanes Irma and Maria are not considered TDRs as the time period for deferral of payments was not significant.

Selected information on TDR loans that includes the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all TDRs:
As of December 31, 2017
Interest rate below marketMaturity or term extensionCombination of reduction in interest rate and extension of maturityForgiveness of principal and/or interestForbearance Agreement Other (1)Total
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans$25,964$8,318$267,578$-$-$62,070$363,930
Commercial Mortgage loans6,5632,09431,870--10,28550,812
Commercial and Industrial loans2,51020,64816,049-6,62348,28294,112
Construction loans:
Land183,9412,186--3316,476
Construction-commercial ---35,100--35,100
Construction-residential-----217217
Consumer loans - Auto-1,34714,233--7,02522,605
Finance Leases-2381,946---2,184
Consumer loans - Other8922,0976,891217-1,68611,783
Total Troubled Debt Restructurings $35,947$38,683$340,753$35,317$6,623$129,896$587,219
(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of the concessions listed in the table.

As of December 31, 2016
Interest rate below marketMaturity or term extensionCombination of reduction in interest rate and extension of maturityForgiveness of principal and/or interestOther (1)Total
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans$29,254$8,373$280,588$-$57,594$375,809
Commercial Mortgage loans6,0442,00730,005-10,68648,742
Commercial and Industrial loans2,11166,83016,35986347,358133,521
Construction loans:
Land-6,7352,219-4089,362
Construction-commercial ---36,893-36,893
Construction-residential----357357
Consumer loans - Auto-1,70614,698-8,47124,875
Finance Leases-3662,281--2,647
Consumer loans - Other2362,5189,6622992,12714,842
Total Troubled Debt Restructurings $37,645$88,535$355,812$38,055$127,001$647,048
(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of the concessions listed in the table.

As of December 31, 2015
Interest rate below marketMaturity or term extensionCombination of reduction in interest rate and extension of maturityForgiveness of principal and/or interestOther (1)Total
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans$29,066$6,027$297,310$-$50,269$382,672
Commercial Mortgage Loans4,3791,24426,109-12,76644,498
Commercial and Industrial Loans2,16375,10427,2143,02742,746150,254
Construction Loans:
Land-2292,165-3722,766
Construction-Commercial---39,466-39,466
Construction-Residential--3,046-4363,482
Consumer Loans - Auto-2,33012,388-6,86421,582
Finance Leases-6211,456--2,077
Consumer Loans - Other891,60411,0263271,74814,794
Total Troubled Debt Restructurings $35,697$87,159$380,714$42,820$115,201$661,591
(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of the concessions listed in the table.

The following table presents the Corporation's TDR loans activity:
Year EndedYear EndedYear Ended
December 31, 2017December 31, 2016December 31, 2015
(In thousands)
Beginning balance of TDRs$647,048$661,591$694,453
New TDRs93,83784,942111,890
Increases to existing TDRs6,5753,9211,018
Charge-offs post-modification(1)(2)(32,963)(24,876)(64,116)
Sales, net of charge-offs(53,245)(3,761)(44,048)
Foreclosures (25,059)(16,834)(39,706)
Removed from the TDR classification-(3,031)-
Reclassification from loans held for sale (3)--40,005
Paid-off and partial payments (48,974)(54,904)(37,905)
Ending balance of TDRs$587,219$647,048$661,591
(1)For the year ended December 31, 2017, includes a $10.7 million charge-off related to the sale of the PREPA credit line.
(2)For the year ended December 31, 2016, includes $1.3 million of charge-offs related to TDRs included in the sale of the $16.3 million pool of non-performing assets. For the year ended December 31, 2015, includes $45.3 million of charge-offs related to TDRs included in the bulk sale of assets.
(3)During the third quarter of 2015, upon the signing of a new agreement with the borrower, the Corporation changed its intent to sell a $40.0 million construction loan in the Virgin Islands. Accordingly, the loan was transferred back from held for sale to held for investment and continues to be classified as a TDR and a non-performing loan.

A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the Corporation is willing to accept for a new loan with comparable risk may not be reported as a TDR, or as an impaired loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. During the year ended December 31, 2016, the Corporation removed a $3.0 million loan from the TDR classification as the borrower was no longer experiencing financial difficulties, and the loan was refinanced at market terms and does not contain any concession to the borrower.

The following table provides a breakdown of the TDR loans by those in accrual and nonaccrual status:
As of December 31, 2017
AccrualNonaccrual (1) Total TDRs
(In thousands)
Non-FHA/VA Residential Mortgage loans$280,729$83,201$363,930
Commercial Mortgage loans23,32927,48350,812
Commercial and Industrial loans41,53652,57694,112
Construction loans:
Land1,2915,1856,476
Construction-commercial-35,10035,100
Construction-residential-217217
Consumer loans - Auto15,5487,05722,605
Finance Leases1,9682162,184
Consumer loans - Other10,2941,48911,783
Total Troubled Debt Restructurings$374,695$212,524$587,219
(1)Included in non-accrual loans are $88.6 million in loans that are performing under the terms of the restructuring agreement but are reported in non-accrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.

As of December 31, 2016
AccrualNonaccrual (1)Total TDRs
(In thousands)
Non-FHA/VA Residential Mortgage loans$295,656$80,153$375,809
Commercial Mortgage loans32,34016,40248,742
Commercial and Industrial loans18,496115,025133,521
Construction loans:
Land7,7321,6309,362
Construction-commercial -36,89336,893
Construction-residential-357357
Consumer loans - Auto16,2538,62224,875
Finance Leases2,5421052,647
Consumer loans - Other11,8682,97414,842
Total Troubled Debt Restructurings $384,887$262,161$647,048
(1)Included in non-accrual loans are $110.6 million in loans that are performing under the terms of the restructuring agreement but are reported in non-accrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.

TDR loans exclude restructured residential mortgage loans that are guaranteed by the U.S. federal government (i.e., FHA/VA loans) totaling $62.1 million as of December 31, 2017 (December 31, 2016 - $69.1 million). The Corporation excludes FHA/VA guaranteed loans from TDR loan statistics given that, in the event that the borrower defaults on the loan, the principal and interest (at the specified debenture rate) are guaranteed by the U.S. government; therefore, the risk of loss on these types of loans is very low. The Corporation does not consider loans with U.S. federal government guarantees to be impaired loans for the purpose of calculating the allowance for loan and lease losses.

Loan modifications that are considered TDRs and were completed during 2017, 2016 and 2015 were as follows:

Year ended December 31, 2017
Number of contractsPre-modification Outstanding Recorded InvestmentPost-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans132$19,484$19,263
Commercial Mortgage loans1325,72225,018
Commercial and Industrial loans2139,42839,338
Construction loans:
Land4122125
Consumer loans - Auto4266,4516,451
Finance Leases22548548
Consumer loans - Other6573,0413,094
Total Troubled Debt Restructurings1,275$94,796$93,837

Year ended December 31, 2016
Number of contractsPre-modification Outstanding Recorded InvestmentPost-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans209$30,940$29,668
Commercial Mortgage loans115,7105,739
Commercial and Industrial loans2522,18222,184
Construction loans:
Land96,7596,756
Consumer loans - Auto74413,14113,141
Finance Leases741,8781,878
Consumer loans - Other1,1565,4965,576
Total Troubled Debt Restructurings2,228$86,106$84,942

Year ended December 31, 2015
Number of contractsPre-modification Outstanding Recorded InvestmentPost-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans408$67,006$64,679
Commercial Mortgage loans1622,36619,914
Commercial and Industrial loans55,9715,351
Construction loans:
Land7603600
Consumer loans - Auto75612,21911,985
Finance Leases551,4471,250
Consumer loans - Other1,3388,1588,111
Total Troubled Debt Restructurings2,585$117,770$111,890

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-performing loan. Recidivism on a modified loan occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The Corporation considers a modified loan to have defaulted if the borrower has failed to make payments of either principal, interest, or both for a period of 90 days or more.

Loan modifications considered TDR loans that defaulted during the years ended December 31, 2017, 2016, and 2015, and had become TDR during the 12 months preceding the default date, were as follows:

Year ended December 31,
201720162015
Number of contractsRecorded InvestmentNumber of contractsRecorded InvestmentNumber of contractsRecorded Investment
(In thousands)
Non-FHA/VA Residential Mortgage loans46$5,35550$7,67369$10,240
Commercial Mortgage loans157--12,179
Commercial and Industrial loans----45,745
Consumer loans - Auto142075176413159
Finance Leases1392436185
Consumer loans - Other99387119454172706
Total 161$6,045222$8,934265$19,214

For certain TDRs, the Corporation splits the loans into two new notes, A and B notes. The A note is restructured to comply with the Corporation’s lending standards at current market rates, and is tailored to suit the customer’s ability to make timely interest and principal payments. The B note includes the granting of the concession to the borrower and varies by situation. The B note is charged off but the obligation is not forgiven to the borrower, and any payments collected are accounted for as recoveries. At the time of the restructuring, the A note is identified and classified as a TDR loan. If the loan performs for at least six months according to the modified terms, the A note may be returned to accrual status. The borrower’s payment performance prior to the restructuring is included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring. In the periods following the calendar year in which a loan is restructured, the A note may no longer be reported as a TDR if it is in accrual status, is in compliance with its modified terms, and yields a market rate (as determined and documented at the time of the restructuring).

The recorded investment in loans held for investment restructured using the A/B note restructure workout strategy was approximately $35.6 million and $37.0 million as of December 31, 2017 and 2016, respectively. The following table provides additional information about the volume of this type of loan restructuring and the effect on the allowance for loan and lease losses in 2017, 2016 and 2015:

(In thousands)December 31, 2017December 31, 2016December 31, 2015
Principal balance deemed collectible at end of year$35,577$36,971$39,329
Amount (recovered) charged off$-$-$-
(Release) charges to the provision for loan losses$(1,294)$4,279$131
Allowance for loan losses at end of year$3,846$5,141$862

Approximately $3.1 million of the loans restructured using the A/B note restructure workout strategy are in accrual status as of December 31, 2017. These loans continue to be individually evaluated for impairment purposes.