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ALLOWANCE FOR CREDIT LOSSES ON LOANS AND FINANCE LEASES | 9 Months Ended
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Sep. 30, 2022
Allowance for Credit Loss [Abstract] |
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND FINANCE LEASES [Text Block] | NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES The following tables present 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, 2022 (In thousands) ACL: Beginning balance $ 65,231 $ 2,020 $ 32,619 $ 36,203 $ 116,079 $ 252,152 Provision for credit losses - expense (benefit) 755 (179) (2,383) (1,228) 17,387 14,352 Charge-offs (1,466) (63) (3) (8) (12,522) (14,062) Recoveries 559 43 57 494 4,264 5,417 Ending balance $ 65,079 $ 1,821 $ 30,290 $ 35,461 $ 125,208 $ 257,859 Residential Mortgage Loans Construction Loans Commercial Mortgage Commercial & Industrial Loans Consumer Loans Total Nine-Month Period Ended September 30, 2022 (In thousands) ACL: Beginning balance $ 74,837 $ 4,048 $ 52,771 $ 34,284 $ 103,090 $ 269,030 Provision for credit losses - (benefit) expense (6,913) (2,242) (23,758) (575) 43,516 10,028 Charge-offs (6,073) (123) (42) (366) (32,765) (39,369) Recoveries 3,228 138 1,319 2,118 11,367 18,170 Ending balance $ 65,079 $ 1,821 $ 30,290 $ 35,461 $ 125,208 $ 257,859 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans 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 Loans 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 The Corporation estimates the ACL following the methodologies described in Note 1 – Nature of Business and Summary of Significant Accounting Policies, in the audited consolidated financial statements included in the 2021 Annual Report on Form 10-K, for each portfolio segment. During the first nine months of 2022, the Corporation applied probability weights to the baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. In weighting these macroeconomic scenarios, the Corporation applied judgment based on a variety of factors such as economic uncertainties associated to a continued conflict in Ukraine, the overall inflationary environment and a potential slowdown in economic activity as a result of the FED’s policy to control inflationary economic conditions. For periods prior to 2022, the Corporation calculated the ACL using the baseline scenario. As of September 30, 2022, the ACL for loans and finance leases was $ 257.9 million, down approximately $ 11.1 million from December 31, 2021. The ACL reduction for commercial and construction loans was $ 23.5 million during the first nine months of 2022, primarily reflecting reduced COVID-19 uncertainties and, to a lesser extent, a reduction in qualitative reserves due to updated borrowers’ financial information received during the third quarter of 2022. In addition, there was an ACL reduction of $ 9.7 million for residential mortgage loans, partially offset by a $ 22.1 million increase in the ACL for consumer loans. The net reduction for residential mortgage loans was primarily driven by the overall decrease in the size of this portfolio. The ACL increase for consumer loans consisted of charges to the provision of $ 43.5 million recorded in the first nine months of 2022 to account for the increase in the size of the portfolio of auto loans and finance leases; a deterioration in the long-term outlook of certain macroeconomic variables, such as the regional unemployment rate; and an increase in charge-off levels mostly related to the auto and credit card loan portfolios, partially offset by net charge-offs of $ 21.4 million. 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. On September 17, 2022, Hurricane Fiona made landfall in the southwestern part of Puerto Rico as a Category 1 storm. As part of its ACL calculation, the Corporation considers the need for qualitative adjustments that include factors such as natural disasters. As of September 30, 2022, management determined that no separate qualitative reserves for this natural disaster were required on the ACL. Notwithstanding, estimates of the storm’s effect on loan losses may change over time as additional information becomes available and any related revisions in the ACL calculation will be reflected in the provision for credit losses as they occur. Total net charge-offs decreased by $ 19.3 million to $ 8.6 million, when compared to the third quarter of 2021. The variance consisted of a $ 22.6 million decrease in net charge-offs on residential mortgage loans, of which $ 23.1 million was 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 $ 0.5 million increase in net recoveries in the commercial and construction loans portfolio; partially offset by a $ 3.8 million increase in net charge-offs on consumer and finance leases, primarily reflected in the auto loans portfolios. Total net charge-offs decreased by $ 26.8 million to $ 21.1 million, when compared to the nine-month period ended September 30, 2021. The variance consisted of a $ 3.5 million decrease in net charge-offs on consumer and finance leases, primarily reflected in the auto and credit card loan portfolios; and a $ 24.7 million decrease in net charge-offs on residential mortgage loans mainly due to the aforementioned bulk sale completed during the third quarter of 2021; partially offset by lower net recoveries in the commercial and construction loans portfolio by $ 1.4 million. 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, 2022 and December 31, 2021: Residential Mortgage Loans Construction Loans Commercial Mortgage Loans Commercial and Industrial Loans (1) Consumer Loans Total As of September 30, 2022 (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,830,974 $ 123,994 $ 2,265,614 $ 2,858,286 $ 3,219,750 $ 11,298,618 Allowance for credit losses 65,079 1,821 30,290 35,461 125,208 257,859 Allowance for credit losses to amortized cost 2.30 % 1.47 % 1.34 % 1.24 % 3.89 % 2.28 % As of December 31, 2021 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 $ 2,978,895 $ 138,999 $ 2,167,469 $ 2,887,251 $ 2,888,044 11,060,658 Allowance for credit losses 74,837 4,048 52,771 34,284 103,090 269,030 Allowance for credit losses to amortized cost 2.51 % 2.91 % 2.43 % 1.19 % 3.57 % 2.43 % (1) As of September 30, 2022 and December 31, 2021, includes $ 17.9 million and $ 145.0 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 – Nature of Business and Summary of Significant Accounting Policies, in the audited consolidated financial statements, which are included in the 2021 Annual Report on Form 10-K. As of September 30, 2022, the ACL for off-balance sheet credit exposures was $ 4.2 million, up $ 2.7 million from $ 1.5 million as of December 31, 2021, mainly driven by an increase in unfunded loan commitments principally due to newly originated facilities which remained undrawn as of September 30, 2022. 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, 2022 and 2021: Quarter Ended Nine-Month Period Ended September 30, September 30, 2022 2021 2022 2021 (In thousands) Beginning Balance $ 2,171 $ 2,730 $ 1,537 $ 5,105 Provision for credit losses - expense (benefit) 2,071 (971) 2,705 (3,346) Ending balance $ 4,242 $ 1,759 $ 4,242 $ 1,759

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