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ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | 12 Months Ended
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Dec. 31, 2024
ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES [Abstract] |
ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES | NOTE 5 – 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 Year Ended December 31, 2024 (In thousands) ACL: Beginning balance $ 57,397 $ 5,605 $ 32,631 $ 33,190 $ 133,020 $ 261,843 Provision for credit losses - (benefit) expense (16,225) (1,912) (10,717) (4,886) 96,601 62,861 Charge-offs (1,971) - - (2,742) (109,115) (113,828) Recoveries 1,453 131 533 6,704 24,245 (1) 33,066 Ending balance $ 40,654 $ 3,824 $ 22,447 $ 32,266 $ 144,751 $ 243,942 (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 Year Ended December 31, 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 (6,866) 1,408 (2,086) 6,372 67,816 66,644 Charge-offs (3,245) (62) (1,133) (6,936) (76,726) (88,102) Recoveries 2,692 1,951 786 841 14,451 20,721 Ending balance $ 57,397 $ 5,605 $ 32,631 $ 33,190 $ 133,020 $ 261,843 (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. Residential Mortgage Loans Construction Loans Commercial Mortgage C&I Loans Consumer Loans Total Year Ended December 31, 2022 (In thousands) ACL: Beginning balance $ 74,837 $ 4,048 $ 52,771 $ 34,284 $ 103,090 $ 269,030 Provision for credit losses - (benefit) expense (8,734) (2,342) (18,994) (1,770) 57,519 25,679 Charge-offs (6,890) (123) (85) (2,067) (48,165) (57,330) Recoveries 3,547 725 1,372 2,459 14,982 23,085 Ending balance $ 62,760 $ 2,308 $ 35,064 $ 32,906 $ 127,426 $ 260,464 The Corporation estimates the ACL following the methodologies described in Note 1 – “Nature of Business and Summary of Significant Accounting Policies” 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 December 31, 2024 and 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 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 December 31, 2024, the ACL for loans and finance leases was $ 243.9 million, a decrease of $ 17.9 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 $ 12.9 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 loan portfolio growth . Meanwhile, the ACL for consumer loans increased by $ 11.7 million driven by higher charge-off and delinquency levels and loan portfolio growth, mainly in auto loans and finance leases. Net charge-offs were $ 80.8 million for the year ended December 31, 2024, compared to $ 67.4 million for the same period in 2023. The $ 13.4 million increase in net charge-offs for the year ended December 31, 2024 was driven by an increase in consumer loans and finance leases charge-offs across all major portfolio classes, partially offset by the effect during 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 $ 6.0 million net charge-off recorded on a C&I participated loan in the Florida region during 2023. The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of December 31, 2024 and 2023: As of December 31, 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 $ 2,828,431 $ 228,396 $ 2,565,984 $ 3,366,038 $ 3,757,707 $ 12,746,556 Allowance for credit losses 40,654 3,824 22,447 32,266 144,751 243,942 Allowance for credit losses to amortized cost 1.44 % 1.67 % 0.87 % 0.96 % 3.85 % 1.91 % 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 27 – “Regulatory Matters, Commitments and Contingencies” for information on off-balance sheet exposures as of December 31, 2024 and 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.” As of December 31, 2024, the ACL for off-balance sheet credit exposures amounted to $ 3.1 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 years ended December 31, 2024, 2023 and 2022: Year Ended December 31, 2024 2023 2022 (In thousands) Beginning Balance $ 4,638 $ 4,273 $ 1,537 Provision for credit losses - (benefit) expense (1,495) 365 2,736 Ending balance $ 3,143 $ 4,638 $ 4,273

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