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ALLOWANCE FOR LOAN AND LEASE LOSSES | 9 Months Ended
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Sep. 30, 2018
Loans And Leases Receivable Disclosure [Abstract] |
ALLOWANCE FOR LOAN AND LEASE LOSSES | NOTE 8 – ALLOWANCE FOR LOAN AND LEASE LOSSES
The changes in the allowance for loan and lease losses were as follows:
| Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Construction Loans |  | Consumer Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Quarter ended September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 55,130 |  | $ | 48,718 |  | $ | 44,000 |  | $ | 3,949 |  | $ | 70,238 |  | $ | 222,035
Charge-offs |  | (8,316) |  |  | (9,850) |  |  | (2,242) |  |  | (2,192) |  |  | (13,712) |  |  | (36,312)
Recoveries |  | 833 |  |  | 291 |  |  | 127 |  |  | 14 |  |  | 2,051 |  |  | 3,316
Provision |  | 360 |  |  | 10,111 |  |  | 2,281 |  |  | 1,308 |  |  | (2,536) |  |  | 11,524
Ending balance | $ | 48,007 |  | $ | 49,270 |  | $ | 44,166 |  | $ | 3,079 |  | $ | 56,041 |  | $ | 200,563
Ending balance: specific reserve for impaired loans | $ | 18,482 |  | $ | 17,044 |  | $ | 10,798 |  | $ | 906 |  | $ | 6,083 |  | $ | 53,313
Ending balance: purchased credit-impaired loans (1) | $ | 10,954 |  | $ | 400 |  | $ | - |  | $ | - |  | $ | - |  | $ | 11,354
Ending balance: general allowance | $ | 18,571 |  | $ | 31,826 |  | $ | 33,368 |  | $ | 2,173 |  | $ | 49,958 |  | $ | 135,896
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,207,981 |  | $ | 1,506,502 |  | $ | 2,068,256 |  | $ | 82,862 |  | $ | 1,851,352 |  | $ | 8,716,953
Ending balance: impaired loans | $ | 408,794 |  | $ | 243,220 |  | $ | 97,154 |  | $ | 6,897 |  | $ | 31,945 |  | $ | 788,010
Ending balance: purchased credit-impaired loans | $ | 145,203 |  | $ | 3,919 |  | $ | - |  | $ | - |  | $ | - |  | $ | 149,122
Ending balance: loans with general allowance | $ | 2,653,984 |  | $ | 1,259,363 |  | $ | 1,971,102 |  | $ | 75,965 |  | $ | 1,819,407 |  | $ | 7,779,821
| Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Construction Loans |  | Consumer Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nine-Month Period Ended September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 58,975 |  | $ | 48,493 |  | $ | 48,871 |  | $ | 4,522 |  | $ | 70,982 |  | $ | 231,843
Charge-offs |  | (17,231) |  |  | (20,557) |  |  | (9,282) |  |  | (8,187) |  |  | (38,111) |  |  | (93,368)
Recoveries |  | 1,857 |  |  | 378 |  |  | 1,565 |  |  | 165 |  |  | 6,519 |  |  | 10,484
Provision |  | 4,406 |  |  | 20,956 |  |  | 3,012 |  |  | 6,579 |  |  | 16,651 |  |  | 51,604
Ending balance | $ | 48,007 |  | $ | 49,270 |  | $ | 44,166 |  | $ | 3,079 |  | $ | 56,041 |  | $ | 200,563
Ending balance: specific reserve for impaired loans | $ | 18,482 |  | $ | 17,044 |  | $ | 10,798 |  | $ | 906 |  | $ | 6,083 |  | $ | 53,313
Ending balance: purchased credit-impaired loans (1) | $ | 10,954 |  | $ | 400 |  | $ | - |  | $ | - |  | $ | - |  | $ | 11,354
Ending balance: general allowance | $ | 18,571 |  | $ | 31,826 |  | $ | 33,368 |  | $ | 2,173 |  | $ | 49,958 |  | $ | 135,896
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,207,981 |  | $ | 1,506,502 |  | $ | 2,068,256 |  | $ | 82,862 |  | $ | 1,851,352 |  | $ | 8,716,953
Ending balance: impaired loans | $ | 408,794 |  | $ | 243,220 |  | $ | 97,154 |  | $ | 6,897 |  | $ | 31,945 |  | $ | 788,010
Ending balance: purchased credit-impaired loans | $ | 145,203 |  | $ | 3,919 |  | $ | - |  | $ | - |  | $ | - |  | $ | 149,122
Ending balance: loans with general allowance | $ | 2,653,984 |  | $ | 1,259,363 |  | $ | 1,971,102 |  | $ | 75,965 |  | $ | 1,819,407 |  | $ | 7,779,821
| Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Construction Loans |  | Consumer Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Quarter ended September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 40,587 |  | $ | 38,576 |  | $ | 42,082 |  | $ | 3,736 |  | $ | 48,504 |  | $ | 173,485
Charge-offs |  | (7,177) |  |  | (266) |  |  | (738) |  |  | (47) |  |  | (11,141) |  |  | (19,369)
Recoveries |  | 321 |  |  | 43 |  |  | 114 |  |  | 16 |  |  | 1,247 |  |  | 1,741
Provision (release) |  | 23,321 |  |  | 17,590 |  |  | (1,079) |  |  | 242 |  |  | 34,939 |  |  | 75,013
Ending balance | $ | 57,052 |  | $ | 55,943 |  | $ | 40,379 |  | $ | 3,947 |  | $ | 73,549 |  | $ | 230,870
Ending balance: specific reserve for impaired loans | $ | 19,417 |  | $ | 10,456 |  | $ | 11,240 |  | $ | 1,865 |  | $ | 5,177 |  | $ | 48,155
Ending balance: purchased credit-impaired loans (1) | $ | 9,863 |  | $ | 372 |  | $ | - |  | $ | - |  | $ | - |  | $ | 10,235
Ending balance: general allowance | $ | 27,772 |  | $ | 45,115 |  | $ | 29,139 |  | $ | 2,082 |  | $ | 68,372 |  | $ | 172,480
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,274,340 |  | $ | 1,601,638 |  | $ | 2,144,236 |  | $ | 129,460 |  | $ | 1,727,540 |  | $ | 8,877,214
Ending balance: impaired loans | $ | 425,835 |  | $ | 153,875 |  | $ | 110,939 |  | $ | 50,373 |  | $ | 38,237 |  | $ | 779,259
Ending balance: purchased credit-impaired loans | $ | 153,609 |  | $ | 4,185 |  | $ | - |  | $ | - |  | $ | - |  | $ | 157,794
Ending balance: loans with general allowance | $ | 2,694,896 |  | $ | 1,443,578 |  | $ | 2,033,297 |  | $ | 79,087 |  | $ | 1,689,303 |  | $ | 7,940,161
| Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Construction Loans |  | Consumer Loans |  | Total
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Nine-Month Period Ended September 30, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for loan and lease losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 33,980 |  | $ | 57,261 |  | $ | 61,953 |  | $ | 2,562 |  | $ | 49,847 |  | $ | 205,603
Charge-offs |  | (22,369) |  |  | (32,123) |  |  | (19,168) |  |  | (705) |  |  | (33,386) |  |  | (107,751)
Recoveries |  | 1,961 |  |  | 151 |  |  | 5,613 |  |  | 594 |  |  | 6,148 |  |  | 14,467
Provision (release) |  | 43,480 |  |  | 30,654 |  |  | (8,019) |  |  | 1,496 |  |  | 50,940 |  |  | 118,551
Ending balance | $ | 57,052 |  | $ | 55,943 |  | $ | 40,379 |  | $ | 3,947 |  | $ | 73,549 |  | $ | 230,870
Ending balance: specific reserve for impaired loans | $ | 19,417 |  | $ | 10,456 |  | $ | 11,240 |  | $ | 1,865 |  | $ | 5,177 |  | $ | 48,155
Ending balance: purchased credit-impaired loans (1) | $ | 9,863 |  | $ | 372 |  | $ | - |  | $ | - |  | $ | - |  | $ | 10,235
Ending balance: general allowance | $ | 27,772 |  | $ | 45,115 |  | $ | 29,139 |  | $ | 2,082 |  | $ | 68,372 |  | $ | 172,480
Loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance | $ | 3,274,340 |  | $ | 1,601,638 |  | $ | 2,144,236 |  | $ | 129,460 |  | $ | 1,727,540 |  | $ | 8,877,214
Ending balance: impaired loans | $ | 425,835 |  | $ | 153,875 |  | $ | 110,939 |  | $ | 50,373 |  | $ | 38,237 |  | $ | 779,259
Ending balance: purchased credit-impaired loans | $ | 153,609 |  | $ | 4,185 |  | $ | - |  | $ | - |  | $ | - |  | $ | 157,794
Ending balance: loans with general allowance | $ | 2,694,896 |  | $ | 1,443,578 |  | $ | 2,033,297 |  | $ | 79,087 |  | $ | 1,689,303 |  | $ | 7,940,161
(1) | Refer to Note 7- Loans Held For Investment-PCI Loans, for a detail of changes in the allowance for loan losses related to PCI loans.
The tables below present the allowance for loan and lease losses and the carrying value of loans by portfolio segment as of September 30, 2018 and December 31, 2017: |
As of September 30, 2018 | Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  |  |  | Consumer Loans |  |  |  |
|  |  |  | Construction Loans |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  | Total |
Impaired loans without specific reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans, net of charge-offs | $ | 117,375 |  | $ | 73,433 |  | $ | 34,793 |  | $ | 1,116 |  | $ | 2,189 |  |  | $ | 228,906 |
Impaired loans with specific reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans, net of charge-offs |  | 291,419 |  |  | 169,787 |  |  | 62,361 |  |  | 5,781 |  |  | 29,756 |  |  |  | 559,104 |
Allowance for loan and lease losses |  | 18,482 |  |  | 17,044 |  |  | 10,798 |  |  | 906 |  |  | 6,083 |  |  |  | 53,313 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance |  | 6.34 | % |  | 10.04 | % |  | 17.32 | % |  | 15.67 | % |  | 20.44 | % |  |  | 9.54 | %
PCI loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Carrying value of PCI loans |  | 145,203 |  |  | 3,919 |  |  | - |  |  | - |  |  | - |  |  |  | 149,122 |
Allowance for PCI loans |  | 10,954 |  |  | 400 |  |  | - |  |  | - |  |  | - |  |  |  | 11,354 |
Allowance for PCI loans to carrying value |  | 7.54 | % |  | 10.21 | % |  | - |  |  | - |  |  | - |  |  |  | 7.61 | %
Loans with general allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans |  | 2,653,984 |  |  | 1,259,363 |  |  | 1,971,102 |  |  | 75,965 |  |  | 1,819,407 |  |  |  | 7,779,821 |
Allowance for loan and lease losses |  | 18,571 |  |  | 31,826 |  |  | 33,368 |  |  | 2,173 |  |  | 49,958 |  |  |  | 135,896 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance |  | 0.70 | % |  | 2.53 | % |  | 1.69 | % |  | 2.86 | % |  | 2.75 |  | % |  | 1.75 | %
Total loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans | $ | 3,207,981 |  | $ | 1,506,502 |  | $ | 2,068,256 |  | $ | 82,862 |  | $ | 1,851,352 |  |  | $ | 8,716,953 |
Allowance for loan and lease losses |  | 48,007 |  |  | 49,270 |  |  | 44,166 |  |  | 3,079 |  |  | 56,041 |  |  |  | 200,563 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance (1) |  | 1.50 | % |  | 3.27 | % |  | 2.14 | % |  | 3.72 | % |  | 3.03 |  | % |  | 2.30 | %
As of December 31, 2017 | Residential Mortgage Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  |  |  | Consumer Loans |  |  |
|  |  |  | Construction Loans |  |  |  |
(Dollars in thousands) |  |  |  |  |  | Total |
Impaired loans without specific reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans, net of charge-offs | $ | 116,818 |  | $ | 65,100 |  | $ | 28,292 |  | $ | 48 |  | $ | 2,788 |  | $ | 213,046 |
Impaired loans with specific reserves: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans, net of charge-offs |  | 316,616 |  |  | 87,814 |  |  | 90,008 |  |  | 47,218 |  |  | 35,606 |  |  | 577,262 |
Allowance for loan and lease losses |  | 22,086 |  |  | 9,783 |  |  | 12,359 |  |  | 2,017 |  |  | 5,165 |  |  | 51,410 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance |  | 6.98 | % |  | 11.14 | % |  | 13.73 | % |  | 4.27 | % |  | 14.51 | % |  | 8.91 | %
PCI loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Carrying value of PCI loans |  | 153,991 |  |  | 4,183 |  |  | - |  |  | - |  |  | - |  |  | 158,174 |
Allowance for PCI loans |  | 10,873 |  |  | 378 |  |  | - |  |  | - |  |  | - |  |  | 11,251 |
Allowance for PCI loans to carrying value |  | 7.06 | % |  | 9.04 | % |  | - |  |  | - |  |  | - |  |  | 7.11 | %
Loans with general allowance: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans |  | 2,703,532 |  |  | 1,457,875 |  |  | 1,964,953 |  |  | 64,131 |  |  | 1,711,503 |  |  | 7,901,994 |
Allowance for loan and lease losses |  | 26,016 |  |  | 38,332 |  |  | 36,512 |  |  | 2,505 |  |  | 65,817 |  |  | 169,182 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance |  | 0.96 | % |  | 2.63 | % |  | 1.86 | % |  | 3.91 | % |  | 3.85 | % |  | 2.14 | %
Total loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal balance of loans | $ | 3,290,957 |  | $ | 1,614,972 |  | $ | 2,083,253 |  | $ | 111,397 |  | $ | 1,749,897 |  | $ | 8,850,476 |
Allowance for loan and lease losses |  | 58,975 |  |  | 48,493 |  |  | 48,871 |  |  | 4,522 |  |  | 70,982 |  |  | 231,843 |
Allowance for loan and lease losses to principal |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
balance (1) |  | 1.79 | % |  | 3.00 | % |  | 2.35 | % |  | 4.06 | % |  | 4.06 | % |  | 2.62 | %
__________
(1) Loans used in the denominator include PCI loans of $149.1 million and $158.2 million as of September 30, 2018 and December 31, 2017, respectively. However, the Corporation separately tracks and reports PCI loans and excludes these loans from the amounts of non-performing loans, impaired loans, TDRs and non-performing assets.
As of September 30, 2018, the Corporation maintained a $0.4 million reserve for unfunded loan commitments (compared to $0.7 million as of December 31, 2017), 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 commitments. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statements of financial conditi on and any change to the reserve is included as part of other non-interest expenses in the consolidated statements of income. Duri ng the second quarter of 2018, t he Corporation implement ed certain enhancements to the methodology for the calculation of t he allowance for commercial loans, which include, among others, a revised procedure whereby historical loss rates for each commercial loan regulatory-based credit risk category (i.e., pass, special mention, substandard, and doubtful) are now calculated usi ng the historical charge-offs and portfolio balances over their average loss emergence period (the “raw loss rate”) for each credit risk classification. However, when not enough loss experience is observed in a particular risk-rated category and the calcul ation results in a loss rate for such risk-rated category that is lower than the loss rate of a less severe risk-rated category, the Corporation now uses the loss rate of such less severe category. As a result of these revisions, the Corporation’s meth od for determining the allowance for loan losses differs from the method that it used as of March 31, 2018, which was to allocate historical losses and portfolio balances of special mention loans to pass or substandard categories based on the historical pr oportion of loans in this risk category that ultimately cured or became uncollectible, and the method that it used as of December 31, 2017, which was to use blended loss rates for commercial loans risk-rated special mention, substandard, and doubtful. In addition, during the second quarter of 2018, the Corporation implemented refinements to the measurement of qualitative factors in the estimation process of the allowance for loan losses for commercial and consumer loans, primarily consisting of the incorporation of a basis point adjustment derived from the difference between the average raw loss rate and the highest lo ss rates observed during a look-back period that management determined was appropriate to use for each regio n to identify any relevan t effect during an economic cycle. Although the net effect of these refinements was immaterial to the total provision expense, on a portfolio basis, these enhancements resulted in a $1.6 million decrease in the provision for commercial and construction lo ans, offset by a $1.6 million increase in the provision for consumer loans in the second quarter of 2018. Hurricane-Related Qualitative Allowance for Loan and Lease Losses As described in Note 2 – Update on Effects of Natural Disasters, two strong hurricanes affected the Corporation’s service areas during September 2017. These hurricanes caused widespread property damage, flooding, power outages, and water and communication service interruptions, and severely disrupted normal economic a ctivity in the affected areas. During the third quarter of 2017, the Corporation recorded a $66.5 million charge to the provision related to the establishment of qualitative reserves associated with the effects of Hurricanes Irma and Maria. Models were d eveloped based on a regression modeling approach in which relationships between portfolio-level loss rates and key economic indicators were derived based on historical behavior. Accordingly, the qualitative reserves were determined based on the estimated effect that the hurricanes could have on employment levels and economic activity in the Corporation’s service areas, and the time that it could take for the affected regions to return to a more normalized operating environment. For large commercial and co nstruction loan relationships, loan officers performed individual reviews of the effect of the hurricanes on these borrowers’ sources of repayments. These large relationships were analyzed and divided into three hurricane-affected categories (i.e., Low, M edium and High). This stratification was used to stress the general reserve loss factors applicable to these loans to reflect higher default probabilities than those reflected in the historical data. For commercial and construction loans not individually reviewed, as well as residential and consumer loans, the hurricane-related qualitative reserves were determined following the above-mentioned qualitative hurricane-related model, with resulting loss factors applied to the overall performing balance of eac h portfolio. Relationship officers have continued to closely monitor the performance of hurricane-affected commercial loan customers during 2018. Information provided by these commercial loan officers, including information derived from regularly sche duled annual reviews, and statistics on the performance of consumer and residential credits w ere factored into the determination of the allowance for loan and lease losses as of September 30, 2018. Although the identification and evaluation of hurricane-a ffected credits has been completed, management’s assessment of the hurricanes’ effect is still subject to uncertainties, both those specific to some individual customers, such as the resolution of insurance claims, and those applicable to the overall econo mic prospects of the hurricane-affected areas as a whole. During the third quarter of 2018, the Corporation performed additional procedures to evaluate the adequacy of the qualitative reserves, including the consideration of updated payment patterns and probability of default credit risk analyses applied to consumer loan borrowers subject to payment deferral programs that expired early in 2018. During the third quarter and nine-month period ended September 30, 2018, the Corporation recorded a net loan l oss reserve release of $2.8 million and $11.2 million, respectively, in connection with revised estimates associated with the effects of the hurricanes. In addition to the above-mentioned updated assessments of financial performance and repayment prospect s of certain individually-assessed commercial credits and updated payment patterns and probability of default credit risk analyses applied to consumer borrowers that were subject to payment deferral programs, the reserve releases in 2018 reflect the effect of payments received during the first nine months of 2018 that reduced the balance of the consumer and residential mortgage loan portfolios outstanding on the dates of the hurricanes. In addition, approximately $10.9 million of the consumer loan charge-o ffs recorded in the third quarter and first nine months of 2018 were taken against previously-established hurricane-related qualitative reserves associated with Hurricanes Irma and Maria. As of September 30, 2018, the hurricane-related qualitative allowan ce amounted to $24.9 million. With the ongoing collection of information on individual commercial customers and statistics on the consumer and residential mortgage loans portfolios, the loss estimate will be revised as needed.

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