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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | 9 Months Ended
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Sep. 30, 2021
Loans And Leases Receivable Disclosure [Abstract] |
ALLOWANCE FOR LOAN AND LEASE LOSSES [Text Block] | NOTE 8 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
The following table presents the activity in the ACL for loans and finance leases by portfolio segment for the indicated periods:
| Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage |  | Commercial & Industrial Loans |  | Consumer Loans |  | Total
Quarter Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 112,882 |  | $ | 4,757 |  | $ | 72,452 |  | $ | 37,470 |  | $ | 97,397 |  | $ | 324,958
Provision for credit losses - (benefit) expense |  | (6,206) |  |  | 527 |  |  | (4,660) |  |  | (4,449) |  |  | 6,054 |  |  | (8,734)
Charge-offs |  | (25,418) |  |  | (7) |  |  | (429) |  |  | (167) |  |  | (8,345) |  |  | (34,366)
Recoveries |  | 1,968 |  |  | 42 |  |  | 43 |  |  | 494 |  |  | 3,955 |  |  | 6,502
Ending balance | $ | 83,226 |  | $ | 5,319 |  | $ | 67,406 |  | $ | 33,348 |  | $ | 99,061 |  | $ | 288,360
| Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage |  | Commercial & Industrial Loans |  | Consumer Loans |  | Total
Nine-Month Period Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 120,311 |  | $ | 5,380 |  | $ | 109,342 |  | $ | 37,944 |  | $ | 112,910 |  | $ | 385,887
Provision for credit losses - (benefit) expense |  | (9,556) |  |  | (125) |  |  | (40,779) |  |  | (10,187) |  |  | 11,168 |  |  | (49,479)
Charge-offs |  | (31,170) |  |  | (52) |  |  | (1,304) |  |  | (1,036) |  |  | (34,904) |  |  | (68,466)
Recoveries |  | 3,641 |  |  | 116 |  |  | 147 |  |  | 6,627 |  |  | 9,887 |  |  | 20,418
Ending balance | $ | 83,226 |  | $ | 5,319 |  | $ | 67,406 |  | $ | 33,348 |  | $ | 99,061 |  | $ | 288,360
| Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Consumer Loans |  | Total
Quarter Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance | $ | 111,450 |  | $ | 7,800 |  | $ | 49,435 |  | $ | 38,310 |  | $ | 112,302 |  | $ | 319,297
Allowance established for acquired PCD loans |  | 12,739 |  |  | - |  |  | 9,723 |  |  | 1,830 |  |  | 4,452 |  |  | 28,744
Provision for credit losses expense |  | 9,875 |  |  | 2,405 |  |  | 19,672 |  |  | 2,839 |  |  | 13,287 |  |  | 48,078
Charge-offs |  | (2,611) |  |  | (1) |  |  | (3,157) |  |  | (150) |  |  | (8,436) |  |  | (14,355)
Recoveries |  | 328 |  |  | 37 |  |  | 53 |  |  | 80 |  |  | 2,456 |  |  | 2,954
Ending balance | $ | 131,781 |  | $ | 10,241 |  | $ | 75,726 |  | $ | 42,909 |  | $ | 124,061 |  | $ | 384,718
| Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage Loans |  | Commercial & Industrial Loans |  | Consumer Loans |  | Total
Nine-Month Period Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
ACL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning balance, prior to the adoption of CECL | $ | 44,806 |  | $ | 2,370 |  | $ | 39,194 |  | $ | 15,198 |  | $ | 53,571 |  | $ | 155,139
Impact of adopting CECL |  | 49,837 |  |  | 797 |  |  | (19,306) |  |  | 14,731 |  |  | 35,106 |  |  | 81,165
Allowance established for acquired PCD loans |  | 12,739 |  |  | - |  |  | 9,723 |  |  | 1,830 |  |  | 4,452 |  |  | 28,744
Provision for credit losses expense |  | 32,255 |  |  | 7,068 |  |  | 49,278 |  |  | 11,225 |  |  | 58,705 |  |  | 158,531
Charge-offs |  | (8,968) |  |  | (75) |  |  | (3,303) |  |  | (323) |  |  | (33,930) |  |  | (46,599)
Recoveries |  | 1,112 |  |  | 81 |  |  | 140 |  |  | 248 |  |  | 6,157 |  |  | 7,738
Ending balance | $ | 131,781 |  | $ | 10,241 |  | $ | 75,726 |  | $ | 42,909 |  | $ | 124,061 |  | $ | 384,718
The Corporation estimates the ACL following the methodologies described in Note 1, – Basis of Presentation and Significant Accounting Policies, in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K, for each portfolio segment. As of September 30, 2021, the Corporation used the base-case economic scenario from Moody’s Analytics to estimate the ACL. The current baseline scenario continues to show a favorable economic scenario and modest improvements in 2021 projected unemployment rate, and commercial real estate price index when compared to previous quarter’s forecast. The average commercial real estate price index appreciation for the remainder of 2021 and 2022 is now at 1.59%, compared to an average contraction of 1.42% in the previous quarter forecast. The average forecasted Puerto Rico, Florida and U.S. unemployment rate for the remainder of 2021 and 2022 is now 7.26%, 3.87% and 3.18%, respectively. The previous quarter estimate was 7.48% for Puerto Rico, 3.06% for Florida, and 4.07% for U.S., showing an improvement in the Puerto Rico and U.S. Expectations for 2023, for these macroeconomic variables, respectively, also present a favorable outlook over the forecasted period. As of September 30, 2021, the ACL for loans and finance leases was $288.4 million, down $97.6 million from December 31, 2020, driven by positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated. The ACL for commercial and construction loans decreased by $46.6 million during the first nine months of 2021, primarily reflecting an improvement in the outlook of macroeconomic variables, including improvements in the commercial real estate price index and unemployment rate forecasts, the overall decline in the size of these portfolios, and the effect of a $5.2 million loan loss recovery recorded in 2021 in connection with a paydown of a nonaccrual commercial and industrial loan. In addition, there was a $13.8 million decrease in the ACL for consumer loans and a $37.1 million decrease in the ACL for residential mortgage loans. The decrease in the ACL for consumer loans consisted of net charge-offs of $25.0 million, primarily taken on personal loans and credit card loans, partially offset by charges to the provision of $11.2 million recorded during the first nine months of 2021 to, among other things, account for the increase in the size of the portfolio of auto loans and finance leases and increases in cumulative historical charge-off levels for personal loans and credit card loans. The decrease in the ACL for residential mortgage loans consisted of net charge-offs of $27.5 million, of which $23.1 million are related to charge-offs recognized as part of the bulk sale of nonaccrual residential mortgage loans and related servicing advances during the third quarter of 2021, and a provision recapture of $9.6 million that was primarily related to improvements in the outlook of macroeconomic variables, such as regional unemployment rate and Home Price Index, and the overall portfolio decrease. For those loans where the ACL was determined based on a discounted cash flow model, the change in the ACL due to the passage of time is recorded as part of the provision for credit losses.
The tables below present the ACL related to loans and finance leases and the carrying value of loans by portfolio segment as of September 30, 2021 and December 31, 2020:
|  |  |  | Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage Loans |  | Commercial and Industrial Loans (1) |  | Consumer Loans |  |  | Total |
As of September 30, 2021 |  |  |  |  |  |  |
(Dollars in thousands) |  |  |  |  |  |  |
Total loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Amortized cost of loans | $ | 3,095,015 |  | $ | 170,208 |  | $ | 2,136,502 |  | $ | 2,932,712 |  | $ | 2,806,145 |  |  | 11,140,582 |
| Allowance for credit losses |  | 83,226 |  |  | 5,319 |  |  | 67,406 |  |  | 33,348 |  |  | 99,061 |  |  | 288,360 |
| Allowance for credit losses to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | amortized cost |  | 2.69 | % |  | 3.13 | % |  | 3.15 | % |  | 1.14 | % |  | 3.53 | % |  | 2.59 | %
As of December 31, 2020 | Residential Mortgage Loans |  | Construction Loans |  | Commercial Mortgage Loans |  | Commercial and Industrial Loans (1) |  | Consumer Loans |  | Total |
(Dollars in thousands) |  |  |  |  |  |
Total loans held for investment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Amortized cost of loans | $ | 3,521,954 |  | $ | 212,500 |  | $ | 2,230,602 |  | $ | 3,202,590 |  | $ | 2,609,643 |  | $ | 11,777,289 |
| Allowance for credit losses |  | 120,311 |  |  | 5,380 |  |  | 109,342 |  |  | 37,944 |  |  | 112,910 |  |  | 385,887 |
| Allowance for credit losses to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | amortized cost |  | 3.42 | % |  | 2.53 | % |  | 4.90 | % |  | 1.18 | % |  | 4.33 | % |  | 3.28 | %
(1) | As of September 30, 2021 and December 31, 2020, includes $218.4 million and $406.0 million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.
In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 - Basis of Presentation and Significant Accounting Policies, in the audited consolidated financial statements, which are included in the 2020 Annual Report on Form 10-K. As of September 30, 2021, the ACL for off-balance sheet credit exposures was $1.8 million, down $3.3 million from $5.1 million as of December 31, 2020. The decrease was mainly in connection with improvements in the outlook of macroeconomic variables. The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters and nine-month periods ended September 30, 2021 and 2020:
| Quarter Ended |  | Nine-Month Period Ended
| September 30, |  | September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
(In thousands) |  |  |  |  |  |  |  |  |  |  |
Beginning Balance | $ | 2,730 |  | $ | 7,084 |  | $ | 5,105 |  | $ | -
Impact of adopting CECL |  | - |  |  | - |  |  | - |  |  | 3,922
Provision for credit losses - (benefit) expense |  | (971) |  |  | (803) |  |  | (3,346) |  |  | 2,359
Ending balance | $ | 1,759 |  | $ | 6,281 |  | $ | 1,759 |  | $ | 6,281

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