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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES
 9 Months Ended
Sep. 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 September 30, 2024
(In thousands)
ACL:
Beginning balance
$
46,051
$
5,646
$
30,078
$
34,448
$
138,309
$
254,532
Provision for credit losses - (benefit) expense
(5,476)
(1,659)
(5,914)
1,138
28,381
16,470
Charge-offs
 
(421)
-
-
(1,350)
(27,274)
(29,045)
Recoveries
497
11
41
210
4,280
5,039
Ending balance
$
40,651
$
3,998
$
24,205
$
34,446
$
143,696
$
246,996
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
 
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
C&I
 
Loans
Consumer Loans
Total
Nine-Month Period Ended September 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
(16,533)
(1,642)
(8,900)
(2,890)
71,282
41,317
Charge-offs
 
(1,428)
-
-
(2,141)
(81,229)
(84,798)
Recoveries
1,215
35
474
6,287
20,623
(1)
28,634
Ending balance
$
40,651
$
3,998
$
24,205
$
34,446
$
143,696
$
246,996
(1)
 
Includes recoveries totaling $
10
.0 million associated with the bulk sale of fully charged-off consumer loans and finance leases.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Loans
Construction
Loans
Commercial
Mortgage
C&I
 
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
(1)
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
(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 September
 
30, 2024
 
and December
 
31, 2023,
 
the Corporation
applied
 
100%
 
probability
 
to
 
the
 
baseline
 
scenario
 
for
 
the
 
commercial
 
mortgage
 
and
 
construction
 
loan
 
portfolios
 
since
 
certain
macroeconomic variables
 
associated with
 
commercial real
 
estate property
 
performance and
 
the commercial
 
real estate
 
(“CRE”) price
index,
 
particularly
 
in
 
the
 
Puerto
 
Rico
 
region,
 
are
 
expected
 
to
 
continue
 
to
 
perform
 
in
 
a
 
more
 
favorable
 
manner
 
than
 
the
 
alternative
downside economic scenario.
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
 
first nine months
 
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
 
September
 
30,
 
2024,
 
the
 
ACL
 
for
 
loans
 
and
 
finance
 
leases
 
was
 
$
247.0
 
million,
 
a
 
decrease
 
of
 
$
14.8
 
million,
 
from
 
$
261.8
million as
 
of December
 
31, 2023.
 
The ACL
 
for residential
 
mortgage loans
 
decreased by
 
$
16.7
 
million, driven
 
by the
 
aforementioned
updated historical loss experience
 
used for determining the ACL estimate resulting
 
in a downward revision of
 
estimated loss severities
and
 
improvements
 
in
 
the
 
long-term
 
projections
 
of
 
the
 
unemployment
 
rate
 
in
 
the
 
Puerto
 
Rico
 
region,
 
partially
 
offset
 
by
 
newly
originated loans. The ACL for commercial
 
and construction loans decreased by
 
$
8.8
 
million, mainly due to reserve releases
 
associated
with the
 
improved financial
 
condition of
 
certain borrowers
 
and an
 
improvement on
 
the economic
 
outlook of
 
certain macroeconomic
variables,
 
particularly
 
variables
 
associated
 
with
 
commercial
 
real
 
estate
 
property
 
performance
 
and
 
the
 
forecasted
 
CRE
 
price
 
index,
partially offset by increased volume.
 
Meanwhile, the
 
ACL for
 
consumer loans
 
increased by
 
$
10.7
 
million driven
 
by higher
 
charge-off
 
levels and
 
loan portfolio
 
growth,
mainly in auto loans.
Net charge-offs
 
were $
24.0
 
million and $
56.2
 
million for the third
 
quarter and first
 
nine months of
 
2024, respectively,
 
compared to
$
14.1
 
million and
 
$
46.6
 
million, respectively,
 
for the
 
same periods
 
in 2023.
 
The $
9.9
 
million increase
 
in net
 
charge-offs for
 
the third
quarter of
 
2024 was
 
driven by
 
an increase
 
in consumer
 
loans and
 
finance leases
 
charge-offs
 
across all
 
major portfolio
 
classes, a
 
$
1.4
million recovery recorded on a
 
construction loan in the
 
Puerto Rico region during the
 
third quarter of 2023,
 
and a $
1.2
 
million charge-
off recorded
 
on the sale
 
of a nonaccrual
 
C&I loan in
 
the Puerto
 
Rico region
 
in the third
 
quarter of
 
2024. The
 
$
9.5
 
million increase
 
in
net
 
charge-offs
 
for
 
the
 
first
 
nine
 
months
 
of
 
2024
 
was
 
driven
 
by
 
the
 
aforementioned
 
increase
 
in
 
consumer
 
loans
 
and
 
finance
 
leases
charge-offs,
 
partially offset
 
by the
 
effect during
 
the first
 
nine months
 
of 2024
 
of both
 
the $
10.0
 
million recovery
 
associated with
 
the
bulk sale of
 
fully charged-off
 
consumer loans and
 
finance leases and a
 
$
5.0
 
million recovery associated
 
with a C&I loan
 
in the Puerto
Rico region,
 
and a
 
$
6.2
 
million charge-off
 
recorded on
 
a C&I
 
participated
 
loan in
 
the Florida
 
region during
 
the first
 
nine months
 
of
2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2024 and December 31, 2023:
As of September 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
$
2,820,147
$
207,342
$
2,471,880
$
3,205,313
$
3,741,342
$
12,446,024
 
Allowance for credit losses
40,651
3,998
24,205
34,446
143,696
246,996
 
Allowance for credit losses to
 
amortized cost
1.44
%
1.93
%
0.98
%
1.07
%
3.84
%
1.98
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 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
 
September
 
30,
 
2024,
 
the
 
ACL
 
for
 
off-balance
 
sheet
 
credit
 
exposures
amounted
 
to $
3.5
 
million,
 
compared
 
to $
4.6
 
million
 
as of
 
December
 
31,
 
2023.
 
The decrease
 
was
 
driven
 
by an
 
improvement
 
on the
economic outlook of certain macroeconomic variables, particularly in
 
variables associated with the CRE price index.
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, 2024 and 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
Nine-Month Period Ended
September 30,
September 30,
2024
2023
2024
2023
(In thousands)
Beginning balance
$
4,502
$
4,889
$
4,638
$
4,273
Provision for credit losses - (benefit) expense
 
(1,041)
(128)
(1,177)
488
Ending balance
$
3,461
$
4,761
$
3,461
$
4,761