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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | 9 Months Ended
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Sep. 30, 2023
ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES [Abstract] |
ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES The following tables present the activity in the ACL on 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, 2023 (In thousands) ACL: Beginning balance $ 60,514 $ 4,804 $ 42,427 $ 28,014 $ 131,299 $ 267,058 Provision for credit losses - (benefit) expense (3,349) (642) (1,344) 1,931 14,047 10,643 Charge-offs (499) (4) (1) (9) (19,746) (20,259) Recoveries 534 1,463 75 161 3,940 6,173 Ending balance $ 57,200 $ 5,621 $ 41,157 $ 30,097 $ 129,540 $ 263,615 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, 2023 (In thousands) ACL: Beginning balance $ 62,760 $ 2,308 $ 35,064 $ 32,906 $ 127,426 $ 260,464 Impact of adoption of ASU 2022-02 2,056 - - 7 53 2,116 Provision for credit losses - (benefit) expense (6,776) 1,420 5,901 3,278 43,846 47,669 Charge-offs (2,628) (42) (107) (6,477) (53,006) (62,260) Recoveries 1,788 1,935 299 383 11,221 15,626 Ending balance $ 57,200 $ 5,621 $ 41,157 $ 30,097 $ 129,540 $ 263,615 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 The Corporation estimates the ACL following the methodologies described in Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K, as updated by the information contained in this report, for each portfolio segment. The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading national and regional economic indicators, and industry trends. During the third quarter of 2023, the Corporation continued to apply the baseline scenario for the commercial mortgage and construction loan portfolios as deterioration in the CRE price index in these portfolios is expected at a lower extent than projected in the alternative downside scenario, particularly in the Puerto Rico region. In addition, during the third quarter of 2023, the Corporation applied the alternative downside scenario for the credit cards portfolio to account for an increased uncertainty in charge-off trends and projection of certain macroeconomic variables, such as retail sales. Results for the ACL include updated macroeconomic projections which continue to reflect deterioration on the long-term outlook of certain macroeconomic variables, such as unemployment rate and retail sales, but at a slower pace, mostly driven by actual results outperforming previous forecasts. As of September 30, 2023, the ACL for loans and finance leases was $ 263.6 million, an increase of $ 3.1 million, from $ 260.5 million as of December 31, 2022. The ACL for commercial and construction loans increased by $ 6.6 million, mainly due to a deterioration in the forecasted CRE price index to account for an increased uncertainty in the CRE market at a national level that could potentially impact the markets served by the Corporation coupled with the growth in the commercial and construction loan portfolios, and a $ 1.7 million incremental reserve recorded during the third quarter of 2023 associated with the inflow to nonaccrual status of a $ 9.5 million commercial and industrial loan in the Puerto Rico region. The ACL for consumer loans increased by $ 2.1 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios and historical charge-off levels, partially offset by updated macroeconomic variables. The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of September 30, 2023 and December 31, 2022: As of September 30, 2023 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans Commercial and Industrial Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,812,631 $ 202,774 $ 2,316,113 $ 3,030,954 $ 3,588,460 $ 11,950,932 Allowance for credit losses 57,200 5,621 41,157 30,097 129,540 263,615 Allowance for credit losses to amortized cost 2.03 % 2.77 % 1.78 % 0.99 % 3.61 % 2.21 % As of December 31, 2022 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans Commercial and Industrial Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,847,290 $ 132,953 $ 2,358,851 $ 2,886,263 $ 3,327,468 $ 11,552,825 Allowance for credit losses 62,760 2,308 35,064 32,906 127,426 260,464 Allowance for credit losses to amortized cost 2.20 % 1.74 % 1.49 % 1.14 % 3.83 % 2.25 % 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. See Note 22 – Regulatory Matters, Commitments, and Contingencies for information on off-balance sheet exposures as of September 30, 2023 and December 31, 2022. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 – Nature of Business and Summary of Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. As of September 30, 2023, the ACL for off-balance sheet credit exposures increased to $ 4.8 million, from $ 4.3 million as of December 31, 2022, driven by the deterioration in the forecasted CRE price index and its effect in construction unfunded loan commitments. 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, 2023 and 2022: Quarter Ended Nine-Month Period Ended September 30, September 30, 2023 2022 2023 2022 (In thousands) Beginning Balance $ 4,889 $ 2,171 $ 4,273 $ 1,537 Provision for credit losses - (benefit) expense (128) 2,071 488 2,705 Ending balance $ 4,761 $ 4,242 $ 4,761 $ 4,242

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