LOAN PORTFOLIO

9 Months Ended

Sep. 30, 2018

NOTE 7 – LOANS HELD FOR INVESTMENT

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

		As of September 30,		As ofDecember 31,
		2018		2017
(In thousands)
Residential mortgage loans, mainly secured by first mortgages		$	3,207,981	$	3,290,957
Commercial loans:
Construction loans (1)			82,862		111,397
Commercial mortgage loans (1)			1,506,502		1,614,972
Commercial and Industrial loans (1)(2)			2,068,256		2,083,253
Total commercial loans			3,657,620		3,809,622
Finance leases			311,180		257,462
Consumer loans			1,540,172		1,492,435
Loans held for investment			8,716,953		8,850,476
Allowance for loan and lease losses			(200,563)		(231,843)
Loans held for investment, net		$	8,516,390	$	8,618,633

(1)	During the first nine months of 2018, the Corporation transferred $74.4 million (net of fair value write-downs of $22.2 million recorded at the time of transfers) in non-performing loans to held for sale. Loans transferred to held for sale consisted of non-performing commercial mortgage loans totaling $39.6 million (net of fair value write-downs of $13.8 million), non-performing construction loans totaling $33.0 million (net of fair value write-downs of $6.7 million) and non-performing commercial and industrial loans totaling $1.8 million (net of fair value write-downs of $1.7 million). Approximately $27.2 million of the commercial mortgage loans transferred to loan held for sale were eventually sold during the second quarter and third quarters of 2018.
(2)	As of September 30, 2018 and December 31, 2017, $802.7 million and $833.5 million, respectively, of commercial loans were secured by real estate but are not dependent upon the real estate for repayment.

Loans held for investment on which accrual of interest income had been discontinued were as follows:

		As of		As of
		September 30,		December 31,
(In thousands)		2018		2017
Non-performing loans:
	Residential mortgage	$	156,685	$	178,291
	Commercial mortgage (1)		117,397		156,493
	Commercial and Industrial (1)		34,551		85,839
	Construction:
	Land (1)		6,922		15,026
	Construction-commercial (1)		-		35,100
	Construction-residential		2,149		1,987
	Consumer:
	Auto loans		12,258		10,211
	Finance leases		1,443		1,237
	Other consumer loans		7,963		5,370
Total non-performing loans held for investment (2)(3)(4)		$	339,368	$	489,554



(1)	During the first nine months of 2018, the Corporation transferred $74.4 million (net of fair value write-downs of $22.2 million recorded at the time of transfers) in non-performing loans to held for sale. Loans transferred to held for sale consisted of non-performing commercial mortgage loans totaling $39.6 million (net of fair value write-downs of $13.8 million), non-performing construction loans totaling $33.0 million (net of fair value write-downs of $6.7 million) and non-performing commercial and industrial loans totaling $1.8 million (net of fair value write-downs of $1.7 million). Approximately $27.2 million of the commercial mortgage loans transferred to loan held for sale were eventually sold during the second quarter and third quarters of 2018.
(2)	Excludes $44.2 million and $8.3 million of non-performing loans held for sale as of September 30, 2018 and December 31, 2017, respectively.
(3)	Amount excludes purchased-credit impaired (“PCI”) loans with a carrying value of approximately $149.1 million and $158.2 million as of September 30, 2018 and December 31, 2017, 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.
(4)	Non-performing loans exclude $510.8 million and $374.7 million of Troubled Debt Restructuring (“TDR”) loans that are in compliance with modified terms and in accrual status as of September 30, 2018 and December 31, 2017, respectively.

During the first quarter of 2018, the Corporation transferred to held for sale several non-performing commercial and construction loans. The aggregate recorded investment in these loans of $66.9 million was written down to $57.2 million, which resulted in charge-offs of $9.7 million, of which $4.1 million was taken against previously-established reserves for loan losses, resulting in a charge to the provision for loan and lease losses of $5.6 million in the first quarter of 2018. Subsequent to the end of the first quarter of 2018, the Corporation sold $27.2 million of the loans transferred to held for sale in separate transactions and a $7.7 million non-performing construction loan held for sale that resulted in the recognition of an additional aggregate net loss of $2.7 million recorded as part of “other non-interest income” in the consolidated statement of income (loss).

In addition, during the third quarter of 2018, the Corporation transferred to held for sale several non-performing commercial and construction loans. The aggregate recorded investment in these loans of $29.7 million was written down to $17.2 million, which resulted in charge-offs of $12.5 million, of which $2.4 million was taken against previously established reserves for loan losses, resulting in a charge to the provision for loan and lease losses of $10.1 million in the third quarter of 2018.

Loans in Process of Foreclosure

As of September 30, 2018, the recorded investment of residential mortgage loans collateralized by residential real estate property that are in the process of foreclosure amounted to $154.9 million, including $23.5 million of loans insured by the FHA or guaranteed by the Veterans Administration (“VA”), and $20.0 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 (i.e., Puerto Rico, Florida and the USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (i.e., the BVI) is processed without court intervention. Foreclosure timelines vary according to state law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays and title issues.

The Corporation’s aging of the loans held for investment portfolio is as follows:
										Purchased Credit-Impaired Loans
		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1)(2)(3)		Total Past Due						Total loans held for investment		90 days past due and still accruing (1)(2)(3)
As of September 30, 2018
(In thousands)												Current
Residential mortgage:
FHA/VA government-guaranteed loans (2) (3) (4)		$	-	$	3,206	$	107,869	$	111,075	$	-	$	39,696	$	150,771	$	107,869
Other residential mortgage loans (2)(4)			-		64,015		171,893		235,908		145,203		2,676,099		3,057,210		15,208
Commercial:
Commercial and Industrial loans			1,729		392		38,998		41,119		-		2,027,137		2,068,256		4,447
Commercial mortgage loans (4)			-		1,192		120,456		121,648		3,919		1,380,935		1,506,502		3,059
Construction:
Land (4)			-		51		6,922		6,973		-		14,331		21,304		-
Construction-commercial			-		1,089		-		1,089		-		52,881		53,970		-
Construction-residential			-		-		2,149		2,149		-		5,439		7,588		-
Consumer:
Auto loans			35,122		7,047		12,258		54,427		-		840,801		895,228		-
Finance leases			5,451		1,839		1,443		8,733		-		302,447		311,180		-
Other consumer loans			7,773		4,885		11,673		24,331		-		620,613		644,944		3,710
Total loans held for investment		$	50,075	$	83,716	$	473,661	$	607,452	$	149,122	$	7,960,379	$	8,716,953	$	134,293
_____________
(1)	Includes non-performing loans and accruing loans that were 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 Corporationʼs policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $33.9 million of residential mortgage loans insured by the FHA that were over 15 months delinquent, and were no longer accruing interest as of September 30, 2018, taking into consideration the FHA interest curtailment process.
(3)	As of September 30, 2018, includes $75.9 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 Corporationʼs 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 September 30, 2018 amounted to $7.0 million, $108.1 million, $4.2 million and $0.1 million, respectively.

As of December 31, 2017		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due(1)(2)(3)								Total loans held for investment		90 days past due and still accruing (1)(2)(3)
(In thousands)		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due(1)(2)(3)			Total Past Due		Purchased Credit- Impaired Loans		Current	Total loans held for investment		90 days past due and still accruing (1)(2)(3)
Residential mortgage:
FHA/VA government-guaranteed loans (2) (3) (4)		$	-	$	6,792	$	102,815	$	109,607	$	-	$	29,332	$	138,939	$	102,815
Other residential mortgage loans (2)(4)			-		92,502		193,750		286,252		153,991		2,711,775		3,152,018		15,459
Commercial:
Commercial and Industrial loans			8,971		576		88,156		97,703		-		1,985,550		2,083,253		2,317
Commercial mortgage loans (4)			-		7,525		163,180		170,705		4,183		1,440,084		1,614,972		6,687
Construction:
Land (4)			-		124		15,177		15,301		-		11,630		26,931		151
Construction-commercial			-		-		35,100		35,100		-		41,456		76,556		-
Construction-residential			-		95		1,987		2,082		-		5,828		7,910		-
Consumer:
Auto loans			57,560		23,783		10,211		91,554		-		752,777		844,331		-
Finance leases			10,549		3,484		1,237		15,270		-		242,192		257,462		-
Other consumer loans			10,776		5,052		9,361		25,189		-		622,915		648,104		3,991
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 were 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 Corporationʼs policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans 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 that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2017, taking into consideration the FHA interest curtailment process.
(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 Corporationʼs 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.

The Corporation’s credit quality indicators by loan type as of September 30, 2018 and December 31, 2017 are summarized below:

		Commercial Credit Exposure - Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
September 30, 2018		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
(In thousands)
Commercial mortgage		$	262,519	$	7,927	$	-	$	270,446	$	1,506,502
Construction:
Land			5,658		-		-		5,658		21,304
Construction - commercial			3,458		-		-		3,458		53,970
Construction - residential			1,194		-		-		1,194		7,588
Commercial and Industrial			96,993		4,659		394		102,046		2,068,256

		Commercial Credit Exposure - Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
December 31, 2017		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
(In thousands)
Commercial mortgage		$	257,503	$	4,166	$	-	$	261,669	$	1,614,972
Construction:
Land			15,971		490		-		16,461		26,931
Construction - commercial			35,100		-		-		35,100		76,556
Construction - residential			1,987		-		-		1,987		7,910
Commercial and Industrial			154,416		3,854		676		158,946		2,083,253
_________
(1)	Excludes non-performing loans held for sale of $44.2 million ($12.4 million commercial mortgage, $30.0 million construction-commercial, and $1.8 million construction-land) and $8.3 million (construction-land) as of September 30, 2018 and December 31, 2017, 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 highly questionable and improbable, on the basis of currently known facts, conditions and values. 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 asset even though partial recovery may occur in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.

The Corporation periodically reviews its loans classification to evaluate if they are properly classified, and to determine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades.

The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and administratively to the Chief Risk Officer, which performs annual comprehensive credit process reviews of the Bank’s commercial portfolios. This group evaluates the credit risk profile of portfolios, including the assessment of the risk rating representative of the current credit quality of the loans, and the evaluation of collateral documentation. The monitoring performed by this group contributes to the assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the evaluation of the effectiveness of the credit management process and the identification of control deficiencies that may arise in the credit-granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee of the Corporation’s Board of Directors.

		Consumer Credit Exposure - Credit Risk Profile Based on Payment Activity
		Residential Real Estate				Consumer
September 30, 2018		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
(In thousands)
Performing		$	150,771	$	2,755,322	$	882,970	$	309,737	$	636,981
Purchased Credit-Impaired (2)			-		145,203		-		-		-
Non-performing			-		156,685		12,258		1,443		7,963
Total		$	150,771	$	3,057,210	$	895,228	$	311,180	$	644,944

(1)	It is the Corporationʼs policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as 90 days past-due loans and still accruing as opposed to non-performing loans since the principal repayment is insured. This balance includes $33.9 million of residential mortgage loans insured by the FHA that were over 15 months delinquent, and were no longer accruing interest as of September 30, 2018, taking into consideration the FHA interest curtailment process.
(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.


		Consumer Credit Exposure - Credit Risk Profile Based on Payment Activity
			Residential Real Estate			Consumer
December 31, 2017		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
(In thousands)
Performing		$	138,939	$	2,819,736	$	834,120	$	256,225	$	642,734
Purchased Credit-Impaired (2)			-		153,991		-		-		-
Non-performing			-		178,291		10,211		1,237		5,370
Total		$	138,939	$	3,152,018	$	844,331	$	257,462	$	648,104

(1)	It is the Corporationʼs policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as 90 days past-due loans 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 that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2017, taking into consideration the FHA interest curtailment process.
(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 held for investment, excluding PCI loans, which are reported separately as discussed below:

Impaired Loans

							Impaired Loans
		Impaired Loans - With a Related Specific Allowance					With No Related Specific Allowance				Impaired Loans Total


	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
(In thousands)
As of September 30, 2018

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		291,419		321,120		18,482		117,375		159,220		408,794		480,340		18,482
Commercial:
Commercial mortgage loans		169,787		184,019		17,044		73,433		79,245		243,220		263,264		17,044
Commercial and Industrial loans		62,361		74,519		10,798		34,793		52,776		97,154		127,295		10,798
Construction:
Land		4,972		5,872		750		160		337		5,132		6,209		750
Construction-commercial		-		-		-		-		-		-		-		-
Construction-residential		809		942		156		956		1,531		1,765		2,473		156
Consumer:
Auto loans		18,623		18,623		3,664		269		269		18,892		18,892		3,664
Finance leases		1,372		1,372		122		-		-		1,372		1,372		122
Other consumer loans		9,761		10,498		2,297		1,920		2,281		11,681		12,779		2,297
	$	559,104	$	616,965	$	53,313	$	228,906	$	295,659	$	788,010	$	912,624	$	53,313


							Impaired Loans
		Impaired Loans - With a Related Specific Allowance					With No Related Specific Allowance				Impaired Loans Total


	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Related Specific Allowance
(In thousands)
As of December 31, 2017

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		316,616		349,284		22,086		116,818		154,048		433,434		503,332		22,086
Commercial:
Commercial mortgage loans		87,814		124,084		9,783		65,100		100,612		152,914		224,696		9,783
Commercial and Industrial loans		90,008		112,005		12,359		28,292		31,254		118,300		143,259		12,359
Construction:
Land		11,865		19,973		1,402		48		49		11,913		20,022		1,402
Construction-commercial		35,101		38,595		560		-		-		35,101		38,595		560
Construction-residential		252		355		55		-		-		252		355		55
Consumer:
Auto loans		22,338		22,338		3,665		267		267		22,605		22,605		3,665
Finance leases		2,184		2,184		104		-		-		2,184		2,184		104
Other consumer loans		11,084		11,830		1,396		2,521		3,688		13,605		15,518		1,396
	$	577,262	$	680,648	$	51,410	$	213,046	$	289,918	$	790,308	$	970,566	$	51,410



	Average Recorded Investment		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
For the quarter ended September 30, 2018

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		411,393		4,641		410		5,051
Commercial:
Commercial mortgage loans		244,802		2,198		656		2,854
Commercial and Industrial loans		98,903		557		2		559
Construction:
Land		5,204		23		5		28
Construction-commercial		-		-		-		-
Construction-residential		1,766		-		-		-
Consumer:
Auto loans		19,479		362		-		362
Finance leases		1,444		27		-		27
Other consumer loans		11,925		274		53		327
	$	794,916	$	8,082	$	1,126	$	9,208



	Average Recorded Investment		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
For the quarter ended September 30, 2017

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		427,858		4,409		402		4,811
Commercial:
Commercial mortgage loans		158,438		764		85		849
Commercial and Industrial loans		110,184		454		174		628
Construction:
Land		14,634		122		9		131
Construction-commercial		35,520		-		-		-
Construction-residential		252		-		-		-
Consumer:
Auto loans		24,049		462		-		462
Finance leases		2,354		43		-		43
Other consumer loans		14,268		388		40		428
	$	787,557	$	6,642	$	710	$	7,352







	Average Recorded Investment		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
Nine-month Period Ended September 30, 2018

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		415,561		13,369		1,080		14,449
Commercial:
Commercial mortgage loans		248,919		2,775		2,038		4,813
Commercial and Industrial loans		102,410		1,438		6		1,444
Construction:
Land		5,260		70		20		90
Construction-commercial		-		-		-		-
Construction-residential		1,765		-		-		-
Consumer:
Auto loans		20,527		1,122		-		1,122
Finance leases		1,582		84		-		84
Other consumer loans		12,353		754		127		881
	$	808,377	$	19,612	$	3,271	$	22,883







	Average Recorded Investment		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
Nine-Month Period Ended September 30, 2017

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		431,741		13,170		1,548		14,718
Commercial:
Commercial mortgage loans		176,757		1,621		287		1,908
Commercial and Industrial loans		112,642		952		211		1,163
Construction:
Land		14,800		358		32		390
Construction-commercial		36,101		-		-		-
Construction-residential		252		-		-		-
Consumer:
Auto loans		25,274		1,357		-		1,357
Finance leases		2,532		140		-		140
Other consumer loans		14,441		1,027		105		1,132
	$	814,540	$	18,625	$	2,183	$	20,808

The following tables show the activity for impaired loans and the related specific reserve for the quarters and nine-month periods ended September 30, 2018 and 2017:

		Quarter Ended				Nine-Month Period Ended
		September 30,				September 30,
			2018		2017		2018		2017
(In thousands)
Impaired Loans:
Balance at beginning of period		$	740,134	$	735,625	$	790,308	$	887,905
Loans determined impaired during the period			119,064		71,884		214,745		110,488
Charge-offs (1)(2)			(18,035)		(6,472)		(48,455)		(66,959)
Loans sold, net of charge-offs			-		-		(4,121)		(53,245)
Increases to existing impaired loans			128		3,215		7,203		4,454
Foreclosures			(8,293)		(5,657)		(27,745)		(36,347)
Loans no longer considered impaired			(1,146)		(542)		(5,086)		(3,324)
Loans transferred to held for sale			(16,839)		-		(74,052)		-
Paid in full, partial payments and other			(27,003)		(18,794)		(64,787)		(63,713)
Balance at end of period		$	788,010	$	779,259	$	788,010	$	779,259

(1)	For the quarter ended September 30, 2018, includes charge-offs totaling $12.5 million associated with the $17.2 million in non-performing loans transferred to held for sale in the third quarter of 2018.
(2)	For the nine-month period ended September 30, 2018, includes charge-offs totaling $22.2 million associated with the $74.4 million in non-performing loans transferred to held for sale during the first nine-months of 2018.


	Quarter Ended				Nine-Month Period Ended
	September 30,				September 30,
	2018		2017		2018		2017
(In thousands)
Specific Reserve:
Balance at beginning of period	$	49,514	$	40,794	$	51,410		64,421
Provision for loan losses		21,821		13,819		50,277		50,014
Net charge-offs		(18,022)		(6,458)		(48,374)		(66,280)
Balance at end of period	$	53,313	$	48,155	$	53,313	$	48,155

Purchased Credit Impaired Loans (PCI)

The Corporation acquired PCI loans accounted for under ASC Topic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC Topic 310-30”), as part of a transaction that closed on February 27, 2015 in which FirstBank acquired 10 Puerto Rico branches of Doral Bank, and acquired certain assets, including PCI loans, and assumed deposits, through an alliance with Banco Popular of Puerto Rico, that 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 Topic 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 mortgages loans in full satisfaction of secured borrowings owed by such entity to FirstBank.

Under ASC Topic 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 under ASC Topic 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 amounts of PCI loans were as follows:
	As of
	September 30,		December 31,
	2018		2017
(In thousands)
Residential mortgage loans	$	145,203	$	153,991
Commercial mortgage loans		3,919		4,183
Total PCI loans	$	149,122	$	158,174
Allowance for loan losses		(11,354)		(11,251)
Total PCI loans, net of allowance for loan losses	$	137,768	$	146,923

The following tables present PCI loans by past due status as of September 30, 2018 and December 31, 2017:


As of September 30, 2018		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
(In thousands)
Residential mortgage loans		$	-	$	7,823	$	28,179	$	36,002	$	109,201	$	145,203
Commercial mortgage loans			-		-		2,960		2,960		959		3,919
Total (1)		$	-	$	7,823	$	31,139	$	38,962	$	110,160	$	149,122
_____________
(1)	According to the Corporationʼs 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 past due 30-59 days as of September 30, 2018 amounted to $12.3 million. No PCI commercial mortgage loan was 30-59 days past due as of September 30, 2018.


As of December 31, 2017		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
(In thousands)
Residential mortgage loans		$	-	$	16,600	$	26,471	$	43,071	$	110,920	$	153,991
Commercial mortgage loans			-		355		2,834		3,189		994		4,183
Total (1)		$	-	$	16,955	$	29,305	$	46,260	$	111,914	$	158,174

(1)	According to the Corporationʼs 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.

Initial Fair Value and Accretable Yield of PCI Loans

At acquisition of PCI loans, the Corporation estimated the cash flows the Corporation expected to collect on the 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. As of September 30, 2018, the reserve related to PCI loans acquired from Doral Financial in 2014 and from Doral Bank in 2015 amounted to $11.4 million

Changes in the accretable yield of PCI loans for the quarters and nine-month periods ended September 30, 2018 and 2017 were as follows:

	Quarter Ended				Nine-Month Period Ended
	September 30,		September 30,		September 30,		September 30,
	2018		2017		2018		2017
(In thousands)
Balance at beginning of period	$	98,489	$	108,971	$	103,682	$	116,462
Accretion recognized in earnings		(2,524)		(2,656)		(7,717)		(8,177)
Reclassification (to) from non-accretable		-		-		-		(1,970)
Balance at end of period	$	95,965	$	106,315	$	95,965	$	106,315


Changes in the carrying amount of PCI loans accounted for pursuant to ASC Topic 310-30 were as follows:
	Quarter Ended				Nine-Month Period Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
(In thousands)
Balance at beginning of period	$	152,242	$	160,368	$	158,174	$	165,818
Accretion		2,524		2,656		7,717		8,177
Collections		(4,835)		(4,225)		(12,590)		(13,327)
Foreclosures		(809)		(1,005)		(4,179)		(2,874)
Ending balance	$	149,122	$	157,794	$	149,122	$	157,794
Allowance for loan losses		(11,354)		(10,235)		(11,354)		(10,235)
Ending balance, net of allowance for loan losses	$	137,768	$	147,559	$	137,768	$	147,559

Changes in the allowance for loan losses related to PCI loans were as follows:


	Quarter Ended				Nine-Month Period Ended
	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
(In thousands)
Balance at beginning of period	$	11,354	$	9,446	$	11,251	$	6,857
Provision for loan losses		-		789		103		3,378
Balance at the end of period	$	11,354	$	10,235	$	11,354	$	10,235

The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $184.2 million as of September 30, 2018 (compared to - $196.6 million as of December 31, 2017).

Purchases and Sales of Loans

During the first nine months of 2018, the Corporation purchased $39.3 million of residential mortgage loans as part of a strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. In general, 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 government-sponsored entities (“GSEs”), such as FNMA and FHLMC, which generally securitize the transferred loans into MBS for sale into the secondary market. During the first nine months of 2018, the Corporation sold $181.2 million of FHA/VA mortgage loans to GNMA, which packaged them into MBS. Also, during the first nine months of 2018, the Corporation sold approximately $78.9 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 agreed 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). The total amount of loans sold in the secondary market included $9.8 million of seasoned residential mortgage loans sold to FNMA in the second quarter of 2018.

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 September 30, 2018 and December 31, 2017, rebooked GNMA delinquent loans included in the residential mortgage loan portfolio amounted to $75.9 million and $62.1 million, respectively.

During the first nine months of 2018 and 2017, the Corporation repurchased, pursuant to its repurchase option with GNMA, $11.0 million and $24.7 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, which is computed at the loan’s interest rate, and the interest payments reimbursed by 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’s estimate of losses related to breaches in representations and warranties is zero as of September 30, 2018.

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 amount of $0.1 million and $27 thousand during the first nine months of 2018 and 2017, 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.

In addition, during the first nine months of 2018, the Corporation purchased a $21.4 million commercial and industrial loan participation. Also, during the first nine months of 2018, the Corporation sold a $5.6 million commercial and industrial adversely-classified loan in Puerto Rico (recording a charge-off of $1.3 million), a $9.2 million commercial and industrial loan participation in the Florida region, and $34.9 million in non-performing commercial and construction loans in Puerto Rico, as further discussed above.

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

During the first quarter of 2017, the Corporation received an unsolicited offer 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 the first quarter of 2017.

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 $8.7 billion as of September 30, 2018, credit risk concentration was approximately 74% in Puerto Rico, 20% in the United States, and 6% in the USVI and BVI.

As of September 30, 2018, the Corporation had $68.5 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $55.9 million as of December 31, 2017. Approximately $47.2 million of the outstanding loans as of September 30, 2018 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 bound 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. In addition to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of September 30, 2018 included a $6.7 million loan extended to a unit of the central government, and a $14.7 million loan granted to an affiliate of PREPA.

In addition, as of September 30, 2018, the Corporation had $113.3 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority. Residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority 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 Puerto Rico Housing Finance Authority, as of June 30, 2016, the Puerto Rico Housing Finance Authority’s mortgage loans insurance program covered loans in an aggregate of approximately $576 million. The regulations adopted by the Puerto Rico Housing Finance Authority require the establishment of adequate reserves to guarantee the solvency of the mortgage loan insurance fund. As of June 30, 2016, the most recent date as to which information is available, the Puerto Rico Housing Finance Authority 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 September 30, 2018, the Corporation had $69.4 million in loans to USVI government instrumentalities and public corporations, compared to $70.4 million as of December 31, 2017. Of the amount outstanding as of September 30, 2018, public corporations of the USVI owed approximately $46.1 million and an independent instrumentality of the USVI government owed approximately $23.2 million. As of September 30, 2018, all loans were currently performing and up to date on principal and interest payments.

The Corporation cannot predict at this time the ultimate effect that the current fiscal situation of the Commonwealth of Puerto Rico, the uncertainty about the debt restructuring process, 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 Hurricane Maria will have on the Puerto Rico economy, the Corporation’s clients, and the Corporation’s financial condition and results of operations.

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 September 30, 2018, the Corporation’s total TDR loans held for investment of $625.7 million consisted of $340.3 million of residential mortgage loans, $79.7 million of commercial and industrial loans, $169.2 million of commercial mortgage loans, $5.8 million of construction loans, and $30.7 million of consumer loans. Outstanding unfunded commitments on TDR loans amounted to $0.4 million as of September 30, 2018.

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 September 30, 2018, the Corporation classified an additional $5.5 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 loans in these portfolios 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 are considered to be concessions. The Corporation mitigates loan defaults for these loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of loans in these portfolios. 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 generally 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, and 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 not considered concessions, and the loans continue to be recorded as performing.

Selected information on TDR loans held for investment that included the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all TDRs held for investment:

		September 30, 2018
		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other ⁽¹⁾		Total
(In thousands)
Troubled Debt Restructurings:
Non - FHA/VA residential mortgage loans		$	24,053	$	11,496	$	245,022	$	-	$	158	$	59,540	$	340,269
Commercial Mortgage loans ⁽²⁾			4,400		30,980		124,493		-		-		9,332		169,205
Commercial and Industrial loans ⁽³⁾			688		19,963		13,323		-		4,225		41,512		79,711
Construction loans:
Land			16		104		2,016		-		-		339		2,475
Construction-commercial ⁽⁴⁾			-		3,102		-		-		-		217		3,319
Construction-residential			-		-		-		-		-		-		-
Consumer loans - Auto			-		1,627		11,066		-		-		6,199		18,892
Finance leases			-		116		1,256		-		-		-		1,372
Consumer loans - Other			1,299		1,398		5,772		228		-		1,780		10,477
Total Troubled Debt Restructurings		$	30,456	$	68,786	$	402,948	$	228	$	4,383	$	118,919	$	625,720

(1)	Other concessions granted by the Corporation included 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.
(2)	Excludes commercial mortgage TDR loans held for sale amounting to $3.6 million as of September 30, 2018.
(3)	Excludes commercial and industrial TDR loans held for sale amounting to $0.9 million as of September 30, 2018.
(4)	Excludes a construction TDR loan held for sale of $27.0 million as of September 30, 2018.


		December 31, 2017
		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance 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 loans			6,563		2,094		31,870		-		-		10,285		50,812
Commercial and Industrial loans			2,510		20,648		16,049		-		6,623		48,282		94,112
Construction loans:
Land			18		3,941		2,186		-		-		331		6,476
Construction-commercial			-		-		-		35,100		-		-		35,100
Construction-residential			-		-		-		-		-		217		217
Consumer loans - Auto			-		1,347		14,233		-		-		7,025		22,605
Finance leases			-		238		1,946		-		-		-		2,184
Consumer loans - Other			892		2,097		6,891		217		-		1,686		11,783
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 included 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 Corporationʼs TDR loans held for investment activity:

		Quarter Ended				Nine-Month Period Ended
		September 30,				September 30,
		2018		2017		2018		2017
(In thousands)
Beginning balance of TDRs		$	557,196	$	568,543	$	587,219	$	647,048
New TDRs			107,357		29,101		164,004		83,368
Increases to existing TDRs			78		2,650		6,924		3,404
Charge-offs post modification (1)(2)(3)			(7,549)		(2,949)		(25,336)		(26,976)
Sales, net of charge-offs			-		-		-		(53,245)
Foreclosures			(4,898)		(3,564)		(15,700)		(24,085)
TDR transferred to held for sale, net of charge-offs			(4,541)		-		(34,541)		-
Paid-off, partial payments and other			(21,923)		(7,986)		(56,850)		(43,719)
Ending balance of TDRs		$	625,720	$	585,795	$	625,720	$	585,795

(1)	The quarter ended September 30, 2018 includes charge-offs of $3.4 million associated with $4.5 million in commercial loans transferred to held for sale.
(2)	The nine-month period ended September 30, 2018 includes charge-offs totaling $8.5 million associated with $34.5 in million commercial and construction loans transferred to held for sale.
(3)	The nine-month period ended September 30, 2017 includes a charge-off of $10.7 million related to the sale of the PREPA credit line.

TDR loans are classified as either accrual or nonaccrual loans. Loans in accrual status may remain in accrual status when their contractual terms have been modified in a TDR if the loans had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on nonaccrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can, and are likely to, continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are 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 or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a non-performing loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs. 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 an impaired loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. The Corporation did not remove any loans from the TDR classification during the first nine months of 2018 and 2017, other than a $9.9 million loan refinanced at market terms as the borrower was no longer experiencing financial difficulties and the refinancing does not contain any concession to the borrower. This refinancing was included as part of “paid-off, partial payments and other” in the above table.

The following table provides a breakdown of the TDR loans held for investment by those in accrual and nonaccrual status:

		As of September 30, 2018

		Accrual		Nonaccrual (1)		Total TDRs
(In thousands)
Non-FHA/VA residential mortgage loans		$	270,067	$	70,202	$	340,269
Commercial Mortgage loans (2)			146,293		22,912		169,205
Commercial and Industrial loans (3)			70,416		9,295		79,711
Construction loans:
Land			1,080		3,939		5,019
Construction-commercial (4)			-		-		-
Construction-residential			-		775		775
Consumer loans - Auto			12,541		6,350		18,891
Finance leases			1,273		99		1,372
Consumer loans - Other			9,176		1,302		10,478
Total Troubled Debt Restructurings		$	510,846	$	114,874	$	625,720

(1)	Included in non-accrual loans are $20.7 million in loans that were performing under the terms of the restructuring agreement but are reported in nonaccrual 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.
(2)	Excludes commercial mortgage TDR loans held for sale amounting to $3.6 million as of September 30, 2018.
(3)	Excludes commercial and industrial TDR loans held for sale amounting to $0.9 million as of September 30, 2018.
(4)	Excludes a construction TDR loan held for sale of $27.0 million as of September 30, 2018.


		As of December 31, 2017

		Accrual		Nonaccrual (1)		Total TDRs
(In thousands)
Non-FHA/VA residential mortgage loans		$	280,729	$	83,201	$	363,930
Commercial Mortgage loans			23,329		27,483		50,812
Commercial and Industrial loans			41,536		52,576		94,112
Construction loans:
Land			1,291		5,185		6,476
Construction-commercial			-		35,100		35,100
Construction-residential			-		217		217
Consumer loans - Auto			15,548		7,057		22,605
Finance leases			1,968		216		2,184
Consumer loans - Other			10,294		1,489		11,783
Total Troubled Debt Restructurings		$	374,695	$	212,524	$	587,219

(1)	Included in non-accrual loans are $88.6 million in loans that were 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 government-guaranteed (e.g., FHA/VA loans) totaling $60.7 million as of September 30, 2018 (compared with $62.1 million as of December 31, 2017). 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 TDR loans completed during the quarters and nine-month periods ended September 30, 2018 and 2017, were as follows:

	Quarter Ended September 30, 2018
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	27	$	6,316	$	5,729
Commercial Mortgage loans	4		96,088		95,867
Commercial and Industrial loans	2		2,800		2,786
Construction loans:
Construction-residential	1		587		558
Consumer loans - Auto	74		1,281		1,281
Finance leases	5		82		80
Consumer loans - Other	198		1,038		1,056
Total Troubled Debt Restructurings	311	$	108,192	$	107,357

	Nine-Month Period Ended September 30, 2018
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	70	$	10,958	$	10,277
Commercial Mortgage loans	9		138,599		138,390
Commercial and Industrial loans	8		8,850		8,496
Construction loans:
Land	1		97		97
Construction-residential	1		587		558
Consumer loans - Auto	195		3,206		3,200
Finance leases	5		82		80
Consumer loans - Other	565		2,857		2,906
Total Troubled Debt Restructurings	854	$	165,236	$	164,004

	Quarter Ended September 30, 2017
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	25	$	3,358	$	3,358
Commercial Mortgage loans	4		2,569		2,318
Commercial and Industrial loans	8		21,079		21,019
Construction loans:
Land	1		18		18
Consumer loans - Auto	109		1,568		1,568
Consumer loans - Other	199		796		820
Total Troubled Debt Restructurings	346	$	29,388	$	29,101


	Nine-Month Period Ended September 30, 2017
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	113	$	17,585	$	17,349
Commercial Mortgage loans	12		25,274		24,783
Commercial and Industrial loans	13		32,153		32,093
Construction loans:
Land	2		43		46
Consumer loans - Auto	383		5,741		5,741
Finance leases	22		548		548
Consumer loans - Other	602		2,756		2,808
Total Troubled Debt Restructurings	1,147	$	84,100	$	83,368

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 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 quarters and nine-month periods ended September 30, 2018 and 2017, and had become TDR during the 12-months preceding the default date, were as follows:

	Quarter Ended September 30,
	2018			2017
	Number of contracts	Recorded Investment		Number of contracts	Recorded Investment
(Dollars in thousands)
Non-FHA/VA residential mortgage loans	3	$	338	16	$	1,795
Consumer loans - Auto	34		559	4		59
Consumer loans - Other	18		59	53		223
Total	55	$	956	73	$	2,077

	Nine-Month Period Ended September 30,
	2018			2017
	Number of contracts	Recorded Investment		Number of contracts	Recorded Investment
(Dollars in thousands)
Non-FHA/VA residential mortgage loans	13	$	1,406	38	$	4,686
Commercial Mortgage loans	-		-	1		57
Consumer loans - Auto	67		1,096	13		189
Consumer loans - Other	57		213	99		387
Finance leases	1		22	-		-
Total	138	$	2,737	151	$	5,319

For certain TDR loans, 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 loan 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 following table provides additional information about the volume of this type of loan restructuring as of September 30, 2018 and 2017 and the effect on the allowance for loan and lease losses in the first nine months of 2018 and 2017:

	September 30, 2018			September 30, 2017
(In thousands)
Principal balance deemed collectible at end of period	$	65,706	$	35,603
Amount charged off	$	1,137	$	-
Charges (release) to the provision for loan losses	$	1,407	$	(1,080)
Allowance for loan losses at end of period	$	4,116	$	4,061

Approximately $63.1 million of the loans restructured using the A/B note restructure workout strategy were in accrual status as of September 30, 2018. These loans continue to be individually evaluated for impairment purposes.