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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | 6 Months Ended
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Jun. 30, 2024
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 C&I Loans Consumer Loans Total Quarter Ended June 30, 2024 (In thousands) ACL: Beginning balance $ 56,689 $ 6,186 $ 32,661 $ 34,490 $ 133,566 $ 263,592 Provision for credit losses - (benefit) expense (10,593) (554) (2,976) (668) 26,721 11,930 Charge-offs (491) - - (332) (25,591) (26,414) Recoveries 446 14 393 958 3,613 5,424 Ending balance $ 46,051 $ 5,646 $ 30,078 $ 34,448 $ 138,309 $ 254,532 Residential Mortgage Loans Construction Loans Commercial Mortgage C&I Loans Consumer Loans Total Quarter Ended June 30, 2023 (In thousands) ACL: Beginning balance $ 64,403 $ 3,231 $ 36,460 $ 31,235 $ 130,238 $ 265,567 Provision for credit losses - (benefit) expense (3,500) 1,202 5,999 2,997 14,072 20,770 Charge-offs (1,146) (38) (88) (6,350) (16,462) (24,084) Recoveries 757 409 56 132 3,451 4,805 Ending balance $ 60,514 $ 4,804 $ 42,427 $ 28,014 $ 131,299 $ 267,058 Residential Mortgage Loans Construction Loans Commercial Mortgage C&I Loans Consumer Loans Total Six-Month Period Ended June 30, 2024 (In thousands) ACL: Beginning balance $ 57,397 $ 5,605 $ 32,631 $ 33,190 $ 133,020 $ 261,843 Provision for credit losses - (benefit) expense (11,057) 17 (2,986) (4,028) 42,901 24,847 Charge-offs (1,007) - - (791) (53,955) (55,753) Recoveries 718 24 433 6,077 16,343 (1) 23,595 Ending balance $ 46,051 $ 5,646 $ 30,078 $ 34,448 $ 138,309 $ 254,532 (1) Includes recoveries totaling $ 9.5 million associated with the bulk sale of fully charged-off consumer loans. Residential Mortgage Loans Construction Loans Commercial Mortgage C&I Loans Consumer Loans Total Six-Month Period Ended June 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 (1) 2,056 - - 7 53 2,116 Provision for credit losses - (benefit) expense (3,427) 2,062 7,245 1,347 29,799 37,026 Charge-offs (2,129) (38) (106) (6,468) (33,260) (42,001) Recoveries 1,254 472 224 222 7,281 9,453 Ending balance $ 60,514 $ 4,804 $ 42,427 $ 28,014 $ 131,299 $ 267,058 (1) Recognized as a result of the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans, which had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023. 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 2023 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. As of June 30, 2024 and December 31, 2023, the Corporation applied the baseline scenario for the commercial mortgage and construction loan portfolios since it expects a more favorable economic outlook of certain macroeconomic variables associated with commercial real estate property performance, particularly in the Puerto Rico region. At least every other year, the Corporation reviews the credit models used in determining the ACL. Such exercise consists primarily in updating the model with recent historical losses and determining if other changes are required for purposes of estimating credit losses. During the second quarter of 2024, the Corporation completed the aforementioned review for the residential mortgage, auto loan, and finance lease portfolios, primarily for the Puerto Rico region. The residential mortgage loan portfolio, which has recently experienced a historically low level of credit losses, as a result of high collateral values in the Puerto Rico region, resulted in a lower required reserve level. For the auto loan and finance lease portfolios historical loss trends were updated and resulted in an increase in the required reserve levels as the loss experience in such portfolios have been trending higher towards historical loss experience. As of June 30, 2024, the ACL for loans and finance leases was $ 254.5 million, a decrease of $ 7.3 million, from $ 261.8 million as of December 31, 2023. The ACL for residential mortgage loans decreased by $ 11.3 million, mainly driven by updated historical loss experience used for determining the ACL estimate resulting in a downward revision of estimated loss severities and lower required reserve levels, partially offset by newly originated loans that have a longer life. The ACL for commercial and construction loans decreased by $ 1.3 million, mainly due to an improvement on the economic outlook of certain macroeconomic variables, particularly in variables associated with commercial real estate property performance, partially offset by increased volume. Meanwhile, the ACL for consumer loans increased by $ 5.3 million mainly driven by increases in delinquency levels, mainly in credit cards; increases in portfolio volumes in the auto loan portfolio; and, to a lesser extent, updated historical loss experience used for determining the ACL estimate resulting in an upward revision of estimated loss severities and higher required reserve levels in the auto loan and finance lease portfolios. Net charge-offs were $ 21.0 million and $ 32.2 million for the second quarter and first six months of 2024, respectively, compared to $ 19.3 million and $ 32.5 million, respectively, for the same periods in 2023. The $ 1.7 million increase in net charge-offs for the second quarter of 2024 was mainly driven by an increase in consumer loans and finance leases charge-offs across all major portfolio classes, partially offset by a $ 6.2 million charge-off recorded on a C&I participated loan in the Florida region in the power generation industry during the second quarter of 2023. The $ 0.3 million decrease in net charge-offs for the first six months of 2024 was mainly driven by the $ 9.5 million recovery associated with the bulk sale of fully charged-off consumer loans and a $ 5.0 million recovery associated with a C&I loan in the Puerto Rico region recorded during the first six months of 2024, and the aforementioned $ 6.2 million charge- off recorded on a C&I participated loan in the Florida region during the second quarter of 2023. This increase was partially offset by the aforementioned increase in consumer loans and finance leases charge-offs. The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of June 30, 2024 and December 31, 2023: As of June 30, 2024 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans C&I Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,809,666 $ 185,957 $ 2,423,309 $ 3,254,577 $ 3,711,999 $ 12,385,508 Allowance for credit losses 46,051 5,646 30,078 34,448 138,309 254,532 Allowance for credit losses to amortized cost 1.64 % 3.04 % 1.24 % 1.06 % 3.73 % 2.06 % As of December 31, 2023 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans C&I Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,821,726 $ 214,777 $ 2,317,083 $ 3,174,232 $ 3,657,665 $ 12,185,483 Allowance for credit losses 57,397 5,605 32,631 33,190 133,020 261,843 Allowance for credit losses to amortized cost 2.03 % 2.61 % 1.41 % 1.05 % 3.64 % 2.15 % 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 21 – “Regulatory Matters, Commitments and Contingencies” for information on off-balance sheet exposures as of June 30, 2024 and December 31, 2023. 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” to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K. As of June 30, 2024, the ACL for off-balance sheet credit exposures amounted to $ 4.5 million, compared to $ 4.6 million as of December 31, 2023. The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters and six-month periods ended June 30, 2024 and 2023: Quarter Ended Six-Month Period Ended June 30, June 30, 2024 2023 2024 2023 (In thousands) Beginning Balance $ 4,919 $ 4,168 $ 4,638 $ 4,273 Provision for credit losses - (benefit) expense (417) 721 (136) 616 Ending balance $ 4,502 $ 4,889 $ 4,502 $ 4,889

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