Allowance for Loan and Lease Losses

3 Months Ended

6 Months Ended

Jun. 30, 2015

Jun. 30, 2016

	Six-Month Period Ended June 30, 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 year	$	26	$	3,429	$	2,087	$	-	$	5,542
Charge-offs		(19)		(1,825)		(1,308)		-		(3,152)
Recoveries		40		169		1,044		-		1,253
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		(26)		1,229		(359)		-		844
Balance at end of year	$	21	$	3,002	$	1,464	$	-	$	4,487

	Six-Month Period Ended June 30, 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 year	$	65	$	1,211	$	3,321	$	-	$	4,597
Charge-offs		(16)		(2,686)		(2,304)		-		(5,006)
Recoveries		17		563		1,072		-		1,652
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20		(12)		3,528		770		-		4,286
Balance at end of period	$	54	$	2,616	$	2,859	$	-	$	5,529

NOTE 5 – ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of the Company’s allowance for loan and lease losses at June 30, 2016 and December 31, 2015 was as follows:

	June 30,		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	$	18,537	$	18,352
Commercial		63,144		64,791
Consumer		11,771		11,197
Auto and leasing		19,259		18,261
Unallocated		101		25
Total allowance for originated and other loans and lease losses		112,812		112,626

Acquired loans:
Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		21		26
Consumer		3,002		3,429
Auto		1,464		2,087
		4,487		5,542
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy) (a)
Mortgage		1,585		1,762
Commercial		15,863		21,161
Auto		5,353		2,862
		22,801		25,785
Total allowance for acquired BBVAPR loans and lease losses		27,288		31,327
Acquired Eurobank loans: (a)
Loans secured by 1-4 family residential properties		11,016		22,570
Commercial and other construction		11,096		67,365
Consumer		4		243
Total allowance for acquired Eurobank loan and lease losses (a)		22,116		90,178
Total allowance for loan and lease losses (a)	$	162,216	$	234,131

(a) A portion of the allowance for loan and lease losses associated with purchased credit impaired loans was derecognized on June 30, 2016 due to the revision in the derecognition policy for these loans.

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.

Effective June 30, 2016, pursuant to supervisory direction, the Company revised its purchase credit impaired policy for all loans accounted for under ASC 310-30. Under the revised policy, the Company writes-off the loan’s recorded investment and derecognizes the associated allowance for loan and lease losses for loans that exit the pools. The revised policy will be implemented prospectively due to the immaterial impact of retrospective adoption. Prior to June 30, 2016, the pool’s carrying value and allowance was determined by discounting expected cash flows at the pool’s effective yield. The allowance for loan and lease losses was maintained until all of the loans in the pool were paid off or charged-off. The transition to this revised policy on June 30, 2016 resulted in the de-recognition of $8.5 million and $72.2 million in the recorded investment balance and associated allowance for loans that had exited the pools for acquired BBVAPR loans and acquired Eurobank loans, respectively, with no impact to the provision for loan and lease losses.

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

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

	Quarter Ended June 30, 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	$	18,784	$	64,206	$	11,414	$	18,716	$	118	$	113,238
Charge-offs		(1,374)		(833)		(2,811)		(8,100)		-		(13,118)
Recoveries		36		228		133		3,243		-		3,640
Provision (recapture) for originated and other loans and lease losses		1,091		(457)		3,035		5,400		(17)		9,052
Balance at end of period	$	18,537	$	63,144	$	11,771	$	19,259	$	101	$	112,812

	Six-Month Period Ended June 30, 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		(3,036)		(1,844)		(5,138)		(16,462)		-		(26,480)
Recoveries		181		316		235		6,222		-		6,954
Provision (recapture) for loan and lease losses		3,040		(119)		5,477		11,238		76		19,712
Balance at end of period	$	18,537	$	63,144	$	11,771	$	19,259	$	101	$	112,812

	June 30, 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	$	8,864	$	56,758	$	-	$	-	$	-	$	65,622
Collectively evaluated for impairment		9,673		6,386		11,771		19,259		101		47,190
Total ending allowance balance	$	18,537	$	63,144	$	11,771	$	19,259	$	101	$	112,812
Loans:
Individually evaluated for impairment	$	90,948	$	217,960	$	-	$	-	$	-	$	308,908
Collectively evaluated for impairment		650,969		1,258,653		265,269		712,268		-		2,887,159
Total ending loan balance	$	741,917	$	1,476,613	$	265,269	$	712,268	$	-	$	3,196,067

	Quarter Ended June 30, 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	$	18,086	$	33,123	$	9,405	$	15,762	$	383	$	76,759
Charge-offs		(1,356)		(497)		(2,309)		(7,662)		-		(11,824)
Recoveries		67		219		390		3,425		-		4,101
Provision for originated and other loans and lease losses		1,279		1,934		2,978		3,539		223		9,953
Balance at end of period	$	18,076	$	34,779	$	10,464	$	15,064	$	606	$	78,989

	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 June 30, 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	$	23	$	3,243	$	1,727	$	-	$	4,993
Charge-offs		(12)		(1,013)		(571)		-		(1,596)
Recoveries		8		88		446		-		542
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		2		684		(138)		-		548
Balance at end of period	$	21	$	3,002	$	1,464	$	-	$	4,487

	June 30, 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	$	21	$	3,002	$	1,464	$	-	$	4,487
Total ending allowance balance	$	21	$	3,002	$	1,464	$	-	$	4,487
Loans:
Individually evaluated for impairment	$	1,433	$	-	$	-	$	-	$	1,433
Collectively evaluated for impairment		3,126		35,194		77,118		-		115,438
Total ending loan balance	$	4,559	$	35,194	$	77,118	$	-	$	116,871

	Quarter Ended June 30, 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	$	49	$	1,885	$	3,516	$	-	$	5,450
Charge-offs		(16)		(1,303)		(1,038)		-		(2,357)
Recoveries		7		429		502		-		938
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20		14		1,605		(121)		-		1,498
Balance at end of period	$	54	$	2,616	$	2,859	$	-	$	5,529

	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 June 30, 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	$	1,762	$	20,430	$	-	$	5,555	$	27,747
(Recapture) provision for BBVAPR loans and lease losses accounted for under ASC 310-30		(163)		3,977		-		-		3,814
Loan pools fully charged-off		(14)		-		-		(202)		(216)
Allowance de-recognition (a)		-		(8,544)		-		-		(8,544)
Balance at end of period	$	1,585	$	15,863	$	-	$	5,353	$	22,801
(a) A portion of the allowance for loan and lease losses associated with purchased credit impaired loans was derecognized on June 30, 2016 due to the revision in the derecognition policy for these loans.

	Six-Month Period Ended June 30, 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
(Recapture) provision for BBVAPR loans and lease losses accounted for under ASC 310-30		(79)		3,228		-		2,693		5,842
Loan pools fully charged-off		(14)		(66)		-		(202)		(282)
Allowance de-recognition (a)		-		(8,544)		-		-		(8,544)
Balance at end of period	$	1,585	$	15,863	$	-	$	5,353	$	22,801
(a) A portion of the allowance for loan and lease losses associated with purchased credit impaired loans was derecognized on June 30, 2016 due to the revision in the derecognition policy for these loans.

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 and six-month periods ended June 30, 2016 and 2015 were as follows:


	Quarter Ended June 30, 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	$	23,961	$	68,089	$	243	$	-	$	92,293
Provision (recapture) for acquired Eurobank loans and lease losses, net		237		801		(7)		-		1,031
FDIC shared-loss portion of provision for covered loan and lease losses, net		951		-		-		-		951
Allowance de-recognition (a)		(14,133)		(57,794)		(232)		-		(72,159)
Balance at end of period	$	11,016	$	11,096	$	4	$	-	$	22,116
(a) A portion of the allowance for loan and lease losses associated with purchased credit impaired loans was derecognized on June 30, 2016 due to the revision in the derecognition policy for these loans.

	Six-Month Period Ended June 30, 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		184		1,659		(7)		-		1,836
FDIC shared-loss portion of provision for covered loan and lease losses, net		2,395		-		-		-		2,395
Loan pools fully charged-off		-		(134)		-		-		(134)
Allowance de-recognition (a)		(14,133)		(57,794)		(232)		-		(72,159)
Balance at end of year	$	11,016	$	11,096	$	4	$	-	$	22,116
(a) A portion of the allowance for loan and lease losses associated with purchased credit impaired loans was derecognized on June 30, 2016 due to the revision in the derecognition policy for these loans.

	Quarter Ended June 30, 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	$	17,340	$	52,922	$	389	$	-	$	70,651
Provision (recapture) for Eurobank loans and lease losses, net		148		(253)		-		-		(105)
FDIC shared-loss portion of provision for covered loan and lease losses, net		105		801		-		-		906
Balance at end of period	$	17,593	$	53,470	$	389	$	-	$	71,452


	Six-Month Period Ended June 30, 2015
	Mortgage		Commercial and Construction		Consumer		Leasing		Total
	(In thousands)
Allowance for loan and lease losses for Eurobank loans:
Balance at beginning of year	$	15,522	$	48,334	$	389	$	-	$	64,245
Provision for Eurobank loans and lease losses, net		1,966		2,738		-		-		4,704
FDIC shared-loss portion of provision for covered loan and lease losses, net		105		2,398		-		-		2,503
Balance at end of year	$	17,593	$	53,470	$	389	$	-	$	71,452

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 June 30, 2016 and December 31, 2015, allowance for loan losses on loans covered by the FDIC shared-loss agreement amounted to $11.0 million and $22.6 million, respectively. The provision for covered loan and lease losses for the quarters ended June 30, 2016 and 2015 was $237 thousand and a recapture of $105 thousand, respectively.