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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 9 Months Ended
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