Allowance for Loan and Lease Losses

3 Months Ended

Mar. 31, 2016

NOTE 5 – ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of the Company’s allowance for loan and lease losses at March 31, 2016 and December 31, 2015 was as follows:

	March 31,		December 31,
	2016		2015
	(In thousands)
Allowance for loans and lease losses on non-acquired loans:
Originated and other loans and leases held for investment:
Mortgage	$	18,784	$	18,352
Commercial		64,206		64,791
Consumer		11,414		11,197
Auto and leasing		18,716		18,261
Unallocated		118		25
Total allowance for originated and other loans and lease losses		113,238		112,626

Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		23		26
Consumer		3,243		3,429
Auto		1,727		2,087
		4,993		5,542
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		1,762		1,762
Commercial		20,430		21,161
Auto		5,555		2,862
		27,747		25,785
Total allowance for acquired BBVAPR loans and lease losses		145,978		143,953
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		34,014		32,624
Commercial and other construction		58,043		57,187
Consumer		236		367
Total allowance for acquired Eurobank loan and lease losses		92,293		90,178
Total allowance for loan and lease losses	$	238,271	$	234,131

The Company maintains an allowance for loan and lease losses at a level that management considers adequate to provide for probable losses based upon an evaluation of known and inherent risks. The Company’s allowance for loan and lease losses policy provides for a detailed quarterly analysis of probable losses. The analysis includes a review of historical loan loss experience, value of underlying collateral, current economic conditions, financial condition of borrowers and other pertinent factors. While management uses available information in estimating probable loan losses, future additions to the allowance may be required based on factors beyond the Company’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for under ASC 310-30, there is deterioration in credit quality subsequent to acquisition, and (ii) for loans accounted for under ASC 310-20, the inherent losses in the loans exceed the remaining credit discount recorded at the time of acquisition.

Allowance for Originated and Other Loan and Lease Losses Held for Investment

The following tables presents the activity in our allowance for loan and lease losses and the related recorded investment of the originated and other loans held for investment portfolio by segment for the periods indicated:

	Quarter Ended March 31, 2016
	Mortgage		Commercial		Consumer		Auto and Leasing		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	18,352	$	64,791	$	11,197	$	18,261	$	25	$	112,626
Charge-offs		(1,662)		(1,011)		(2,327)		(8,362)		-		(13,362)
Recoveries		145		88		102		2,979		-		3,314
Provision for originated and other loans and lease losses		1,949		338		2,442		5,838		93		10,660
Balance at end of period	$	18,784	$	64,206	$	11,414	$	18,716	$	118	$	113,238

	March 31, 2016
	Mortgage		Commercial		Consumer		Auto and Leasing		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses on originated and other loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	9,135	$	56,580	$	-	$	-	$	-	$	65,715
Collectively evaluated for impairment		9,649		7,626		11,414		18,716		118		47,523
Total ending allowance balance	$	18,784	$	64,206	$	11,414	$	18,716	$	118	$	113,238
Loans:
Individually evaluated for impairment	$	90,772	$	226,653	$	-	$	-	$	-	$	317,425
Collectively evaluated for impairment		661,047		1,198,732		252,327		687,159		-		2,799,265
Total ending loan balance	$	751,819	$	1,425,385	$	252,327	$	687,159	$	-	$	3,116,690

	Quarter Ended March 31, 2015
	Mortgage		Commercial		Consumer		Auto and Leasing		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	19,679	$	8,432	$	9,072	$	14,255	$	1	$	51,439
Charge-offs		(1,414)		(992)		(1,676)		(8,136)		-		(12,218)
Recoveries		-		89		153		3,384		-		3,626
Provision (recapture) for originated and other loans and lease losses		(179)		25,594		1,856		6,259		382		33,912
Balance at end of period	$	18,086	$	33,123	$	9,405	$	15,762	$	383	$	76,759

	December 31, 2015
	Mortgage		Commercial		Consumer		Auto and Leasing		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses on originated and other loans:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	9,233	$	55,947	$	-	$	-	$	-	$	65,180
Collectively evaluated for impairment		9,119		8,844		11,197		18,261		25		47,446
Total ending allowance balance	$	18,352	$	64,791	$	11,197	$	18,261	$	25	$	112,626
Loans:
Individually evaluated for impairment	$	89,973	$	235,294	$	-	$	-	$	-	$	325,267
Collectively evaluated for impairment		667,855		1,206,355		242,950		669,163		-		2,786,323
Total ending loan balance	$	757,828	$	1,441,649	$	242,950	$	669,163	$	-	$	3,111,590

Allowance for BBVAPR Acquired Loan Losses

Loans accounted for under ASC 310-20 (Loans with revolving feature and/or acquired at a premium)

The following tables present the activity in our allowance for loan losses and related recorded investment of the associated loans in our BBVAPR acquired loan portfolio, excluding loans accounted for under ASC 310-30, for the periods indicated:

	Quarter Ended March 31, 2016
	Commercial		Consumer		Auto		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Balance at beginning of period	$	26	$	3,429	$	2,087	$	-	$	5,542
Charge-offs		(7)		(812)		(737)		-		(1,556)
Recoveries		32		81		598		-		711
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		(28)		545		(221)		-		296
Balance at end of period	$	23	$	3,243	$	1,727	$	-	$	4,993

	March 31, 2016
	Commercial		Consumer		Auto		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	$	23	$	3,243	$	1,727	$	-	$	4,993
Total ending allowance balance	$	23	$	3,243	$	1,727	$	-	$	4,993
Loans:
Individually evaluated for impairment	$	464	$	-	$	-	$	-	$	464
Collectively evaluated for impairment		6,094		36,346		91,406		-		133,846
Total ending loan balance	$	6,558	$	36,346	$	91,406	$	-	$	134,310

	Quarter Ended March 31, 2015
	Commercial		Consumer		Auto		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Balance at beginning of period	$	65	$	1,211	$	3,321	$	-	$	4,597
Charge-offs		-		(1,380)		(1,267)		-		(2,647)
Recoveries		9		134		570		-		713
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20		(25)		1,920		892		-		2,787
Balance at end of period	$	49	$	1,885	$	3,516	$	-	$	5,450

	December 31, 2015
	Commercial		Consumer		Auto		Unallocated		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20:
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	$	26	$	3,429	$	2,087	$	-	$	5,542
Total ending allowance balance	$	26	$	3,429	$	2,087	$	-	$	5,542
Loans:
Individually evaluated for impairment	$	474	$	-	$	-	$	-	$	474
Collectively evaluated for impairment		6,983		38,385		106,911		-		152,279
Total ending loan balance	$	7,457	$	38,385	$	106,911	$	-	$	152,753

Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy)

The following tables present the activity in our allowance for loan losses and related recorded investment of the acquired BBVAPR loan portfolio accounted for under ASC 310-30, for the periods indicated:

	Quarter Ended March 31, 2016
	Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	1,678	$	21,245	$	-	$	2,862	$	25,785
Provision (recapture) for BBVAPR loans and lease losses accounted for under ASC 310-30		84		(749)		-		2,693		2,028
Loan pools fully charged-off		-		(66)		-		-		(66)
Balance at end of period	$	1,762	$	20,430	$	-	$	5,555	$	27,747


	Quarter Ended March 31, 2015
	Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-30:
Balance at beginning of period	$	-	$	13,476	$	-	$	5	$	13,481
Provision for BBVAPR loans and lease losses accounted for under ASC 310-30		-		211		-		474		685
Balance at end of period	$	-	$	13,687	$	-	$	479	$	14,166

Allowance for Acquired Eurobank Loan Losses

For loans accounted for under ASC 310-30, as part of the evaluation of actual versus expected cash flows, the Company assesses on a quarterly basis the credit quality of these loans based on delinquency, severity factors and risk ratings, among other assumptions. Migration and credit quality trends are assessed at the pool level, by comparing information from the latest evaluation period through the end of the reporting period.

The changes in the allowance for loan and lease losses on acquired Eurobank loans for the quarters ended March 31, 2016 and 2015 were as follows:


	Quarter Ended March 31, 2016
	Loans Secured by 1-4 Family Residential Properties		Commercial and Construction		Consumer		Leasing		Total
	(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:
Balance at beginning of period	$	22,570	$	67,365	$	243	$	-	$	90,178
Provision (recapture) for acquired Eurobank loans and lease losses, net		(53)		858		-		-		805
Loan pools fully charged-off		-		(134)		-		-		(134)
FDIC shared-loss portion of provision for covered loan and lease losses, net		1,444		-		-		-		1,444
Balance at end of period	$	23,961	$	68,089	$	243	$	-	$	92,293

	Quarter Ended March 31, 2015
	Mortgage		Commercial and Construction		Consumer		Leasing		Total
	(In thousands)
Allowance for loan and lease losses for acquired Eurobank loans:
Balance at beginning of period	$	15,522	$	48,334	$	389	$	-	$	64,245
Provision for covered loan and lease losses, net		1,818		2,991		-		-		4,809
FDIC shared-loss portion of provision for covered loan and lease losses, net		-		1,597		-		-		1,597
Balance at end of period	$	17,340	$	52,922	$	389	$	-	$	70,651

The FDIC shared-loss portion of provision for acquired Eurobank loans and lease losses, net, represents the credit impairment losses to be covered under the FDIC loss-share agreement which is increasing the FDIC loss-share indemnification asset.

The FDIC loss sharing obligation, related to commercial and other-non single family acquired Eurobank loans expired on June 30, 2015. The coverage for the single family residential loans will expire on June 30, 2020. The remaining covered loans are included as part of acquired Eurobank loans under the name "loans secured by 1-4 family residential properties." At March 31, 2016 and December 31, 2015, allowance for loan losses on loans covered by the FDIC shared-loss agreement amounted to $24.0 million and $22.6 million, respectively. The provision for covered loan and lease losses for the quarters ended March 31, 2016 and 2015 was $54 thousand and $4.8 million, respectively.