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Allowance for Loan and Lease Losses | 12 Months Ended
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Dec. 31, 2018
Allowance for loan and lease losses [Abstract] |
Allowance For Credit Losses Text Block | NOTE 7 – ALLOWANCE FOR LOAN AND LEASE LOSSES The composition of Oriental’s allowance for loan and lease losses at December 31, 2018 and 2017 was as follows:
| December 31,
| 2018 |  | 2017
| (In thousands)
Allowance for loans and lease losses: |  |  |  |  |
Originated and other loans and leases held for investment: |  |  |  |  |
Mortgage | $ | 19,783 |  | $ | 20,439
Commercial |  | 30,326 |  |  | 30,258
Consumer |  | 15,571 |  |  | 16,454
Auto and leasing |  | 29,508 |  |  | 25,567
Total allowance for originated and other loans and lease losses |  | 95,188 |  |  | 92,718
Acquired BBVAPR loans: |  |  |  |  |
Accounted for under ASC 310-20 (Loans with revolving feature and/or |  |  |  |  |
acquired at a premium) |  |  |  |  |
Commercial |  | 22 |  |  | 42
Consumer |  | 1,905 |  |  | 3,225
Auto |  | 135 |  |  | 595
|  | 2,062 |  |  | 3,862
Accounted for under ASC 310-30 (Loans acquired with deteriorated |  |  |  |  |
credit quality, including those by analogy) |  |  |  |  |
Mortgage |  | 15,225 |  |  | 14,085
Commercial |  | 20,641 |  |  | 23,691
Consumer |  | - |  |  | 18
Auto |  | 6,144 |  |  | 7,961
|  | 42,010 |  |  | 45,755
Total allowance for acquired BBVAPR loans and lease losses |  | 44,072 |  |  | 49,617
Acquired Eurobank loans: |  |  |  |  |
Loans secured by 1-4 family residential properties |  | 15,382 |  |  | 15,187
Commercial |  | 9,585 |  |  | 9,983
Consumer |  | 4 |  |  | 4
Total allowance for acquired Eurobank loan and lease losses |  | 24,971 |  |  | 25,174
Total allowance for loan and lease losses | $ | 164,231 |  | $ | 167,509
O riental 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. Oriental’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 Oriental’s control. We also maintain an allowance for loan losses on acquired loans when: (i) for loans accounted for u nder 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. As discussed in Note 2, during 2017, hurricanes Irma and Maria caused catastrophic damages throughout Puerto Rico. Management performed an evaluation of the loan portfolios to assess the impact on repayment sources and underlying collateral that could result in additi onal losses. For the commercial portfolio, the framework for the analysis was based on our current ALLL methodology with additional considerations according to the estimated impact categorized as low, medium or high. From this impact assessment, additiona l reserve levels were estimated by increasing default probabilities (“PD”) and loss given default expectations (“LGD”) of each allowance segment. As part of the process, Oriental contacted its clients to evaluate the impact of the hurricanes on their busi ness operations and collateral. The impact was then categorized as follows: (i) low risk, for clients that had no business impact or relatively insignificant impact; (ii) medium risk, for clients that had a business impact on their primary or secondary sou rces of repayment, but still had adequate cash flow to cover operations and to satisfy their obligations; or (iii) high risk, for clients that had potentially significant problems that affected primary, secondary and tertiary (collateral) sources of repaym ent. This criterion was used to model adjusted PDs and LGDs considering internal and external sources of information available to support our estimation process and output. During the fourth quarter of 2017, Oriental performed an update of the initial e stimate, taking into consideration the most recent available information gathered through additional visits and interviews with clients and the economic environment in Puerto Rico. For the retail portfolios, mortgage, consumer and auto, the assumptions es tablished in the initial estimate were based on the historical losses of each ALLL segment and then further adjusted based on parameters used as key risk indicators, such as the industry of employment for all portfolios and the location of the collateral f or mortgage loans. During the fourth quarter of 2017, Oriental performed additional procedures to evaluate the reasonability of the initial estimate based on the payment experience percentage of borrowers for which the deferral period expired. The analysis took into consideration historical payment behavior and loss experience of borrowers (PDs and LGDs) of each portfolio segment to develop a range of estimated potential losses. Management understands that this approach is reasonable given the lack of histo rical information related to the behavior of local borrowers in such an unprecedented event. The amount used in the analysis represents the average of potential outcomes of expected losses. During 2018, Oriental continued its monitoring process of the performance of those affected borrowers. As information became available, it was inc orporated into the allowance framework. At December 31, 2018 and 2017, Oriental's allowance for loan and lease losses incorporated all risks associated to our loan portfolio, including the impact of hurricanes Irma and Maria. Allowance for Origina ted 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 portfolio by segment for the periods indicated:
| Year Ended December 31, 2018
| Mortgage |  | Commercial |  | Consumer |  | Auto and Leasing |  | Total
| (In thousands)
Allowance for loan and lease losses for originated and other loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 20,439 |  | $ | 30,258 |  | $ | 16,454 |  | $ | 25,567 |  | $ | 92,718
Charge-offs |  | (5,297) |  |  | (6,782) |  |  | (17,629) |  |  | (42,685) |  |  | (72,393)
Recoveries |  | 1,047 |  |  | 654 |  |  | 1,757 |  |  | 19,344 |  |  | 22,802
Provision for loan and lease losses |  | 3,594 |  |  | 6,196 |  |  | 14,989 |  |  | 27,282 |  |  | 52,061
Balance at end of year | $ | 19,783 |  | $ | 30,326 |  | $ | 15,571 |  | $ | 29,508 |  | $ | 95,188
| Year Ended December 31, 2017
| 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 year | $ | 17,344 |  | $ | 8,995 |  | $ | 13,067 |  | $ | 19,463 |  | $ | 431 |  | $ | 59,300
Charge-offs |  | (6,623) |  |  | (7,684) |  |  | (13,641) |  |  | (33,908) |  |  | - |  |  | (61,856)
Recoveries |  | 585 |  |  | 1,281 |  |  | 1,209 |  |  | 12,314 |  |  | - |  |  | 15,389
Provision (recapture) for originated and other loan and lease losses |  | 9,133 |  |  | 27,666 |  |  | 15,819 |  |  | 27,698 |  |  | (431) |  |  | 79,885
Balance at end of year | $ | 20,439 |  | $ | 30,258 |  | $ | 16,454 |  | $ | 25,567 |  | $ | - |  | $ | 92,718
| Year Ended December 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 year | $ | 18,352 |  | $ | 64,791 |  | $ | 11,197 |  | $ | 18,261 |  | $ | 25 |  | $ | 112,626
Charge-offs |  | (6,767) |  |  | (62,445) |  |  | (11,554) |  |  | (31,731) |  |  | - |  |  | (112,497)
Recoveries |  | 330 |  |  | 460 |  |  | 452 |  |  | 12,871 |  |  | - |  |  | 14,113
Provision for originated and other loan and lease losses |  | 5,429 |  |  | 6,189 |  |  | 12,972 |  |  | 20,062 |  |  | 406 |  |  | 45,058
Balance at end of year | $ | 17,344 |  | $ | 8,995 |  | $ | 13,067 |  | $ | 19,463 |  | $ | 431 |  | $ | 59,300
| December 31, 2018
| Mortgage |  | Commercial |  | Consumer |  | Auto and Leasing |  | Total
| (In thousands)
Allowance for loan and lease losses on originated and other loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending allowance balance attributable to loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 10,186 |  | $ | 8,434 |  | $ | - |  | $ | - |  | $ | 18,620
Collectively evaluated for impairment |  | 9,597 |  |  | 21,892 |  |  | 15,571 |  |  | 29,508 |  |  | 76,568
Total ending allowance balance | $ | 19,783 |  | $ | 30,326 |  | $ | 15,571 |  | $ | 29,508 |  | $ | 95,188
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 84,174 |  | $ | 81,229 |  | $ | - |  | $ | - |  | $ | 165,403
Collectively evaluated for impairment |  | 584,635 |  |  | 1,516,359 |  |  | 348,980 |  |  | 1,129,695 |  |  | 3,579,669
Total ending loan balance | $ | 668,809 |  | $ | 1,597,588 |  | $ | 348,980 |  | $ | 1,129,695 |  | $ | 3,745,072
| December 31, 2017
| 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 | $ | 9,121 |  | $ | 10,573 |  | $ | - |  | $ | - |  | $ | - |  | $ | 19,694
Collectively evaluated for impairment |  | 11,318 |  |  | 19,685 |  |  | 16,454 |  |  | 25,567 |  |  | - |  |  | 73,024
Total ending allowance balance | $ | 20,439 |  | $ | 30,258 |  | $ | 16,454 |  | $ | 25,567 |  | $ | - |  | $ | 92,718
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 85,403 |  | $ | 71,538 |  | $ | - |  | $ | - |  | $ | - |  | $ | 156,941
Collectively evaluated for impairment |  | 598,204 |  |  | 1,235,723 |  |  | 330,039 |  |  | 883,985 |  |  | - |  |  | 3,047,951
Total ending loan balance | $ | 683,607 |  | $ | 1,307,261 |  | $ | 330,039 |  | $ | 883,985 |  | $ | - |  | $ | 3,204,892
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 accounted for under ASC 310-20, for the periods indicated:
| Year Ended December 31, 2018
| Commercial |  | Consumer |  | Auto |  | Total
| (In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 42 |  | $ | 3,225 |  | $ | 595 |  | $ | 3,862
Charge-offs |  | (6) |  |  | (2,459) |  |  | (372) |  |  | (2,837)
Recoveries |  | 23 |  |  | 480 |  |  | 831 |  |  | 1,334
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20 |  | (37) |  |  | 659 |  |  | (919) |  |  | (297)
Balance at end of year | $ | 22 |  | $ | 1,905 |  | $ | 135 |  | $ | 2,062
| Year Ended December 31, 2017
| Commercial |  | Consumer |  | Auto |  | Total
| (In thousands)
Allowance for loan and lease losses for acquired BBVAPR loans accounted for under ASC 310-20: |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 169 |  | $ | 3,028 |  | $ | 1,103 |  | $ | 4,300
Charge-offs |  | (132) |  |  | (3,048) |  |  | (976) |  |  | (4,156)
Recoveries |  | 5 |  |  | 446 |  |  | 1,420 |  |  | 1,871
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |  | - |  |  | 2,799 |  |  | (952) |  |  | 1,847
Balance at end of year | $ | 42 |  | $ | 3,225 |  | $ | 595 |  | $ | 3,862
| Year Ended December 31, 2016
| Commercial |  | Consumer |  | Auto |  | 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 |  | (42) |  |  | (3,619) |  |  | (2,155) |  |  | (5,816)
Recoveries |  | 73 |  |  | 301 |  |  | 1,945 |  |  | 2,319
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20 |  | 112 |  |  | 2,917 |  |  | (774) |  |  | 2,255
Balance at end of year | $ | 169 |  | $ | 3,028 |  | $ | 1,103 |  | $ | 4,300
| December 31, 2018
| Commercial |  | Consumer |  | Auto |  | 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: |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 14 |  | $ | - |  | $ | - |  | $ | 14
Collectively evaluated for impairment |  | 8 |  |  | 1,905 |  |  | 135 |  |  | 2,048
Total ending allowance balance | $ | 22 |  | $ | 1,905 |  | $ | 135 |  | $ | 2,062
Loans: |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 747 |  | $ | - |  | $ | - |  | $ | 747
Collectively evaluated for impairment |  | 1,799 |  |  | 23,988 |  |  | 4,435 |  |  | 30,222
Total ending loan balance | $ | 2,546 |  | $ | 23,988 |  | $ | 4,435 |  | $ | 30,969
| December 31, 2017
| Commercial |  | Consumer |  | Auto |  | 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: |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 20 |  | $ | - |  | $ | - |  | $ | 20
Collectively evaluated for impairment |  | 22 |  |  | 3,225 |  |  | 595 |  |  | 3,842
Total ending allowance balance | $ | 42 |  | $ | 3,225 |  | $ | 595 |  | $ | 3,862
Loans: |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 747 |  | $ | - |  | $ | - |  | $ | 747
Collectively evaluated for impairment |  | 3,633 |  |  | 28,915 |  |  | 21,969 |  |  | 54,517
Total ending loan balance | $ | 4,380 |  | $ | 28,915 |  | $ | 21,969 |  | $ | 55,264
Loans Accounted for under ASC 310-30 (including those accounted for under ASC 310-30 by analogy) For loans accounted for under ASC 310-30, as part of the evaluation of actual versus expected cash flows, Oriental 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 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:
| Year Ended December 31, 2018
| 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 year | $ | 14,085 |  | $ | 23,691 |  | $ | 18 | $ | 7,961 |  | 45,755
Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |  | 1,331 |  |  | 1,360 |  |  | (18) |  | (887) |  | 1,786
Allowance de-recognition |  | (191) |  |  | (4,410) |  |  | - |  | (930) |  | (5,531)
Balance at end of year | $ | 15,225 |  | $ | 20,641 |  | $ | - | $ | 6,144 |  | 42,010
| Year Ended December 31, 2017
| 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 year | $ | 2,682 |  | $ | 23,452 |  | $ | - |  | $ | 4,922 |  | $ | 31,056
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30 |  | 11,497 |  |  | 9,758 |  |  | 18 |  |  | 3,408 |  |  | 24,681
Allowance de-recognition |  | (94) |  |  | (9,519) |  |  | - |  |  | (369) |  |  | (9,982)
Balance at end of year | $ | 14,085 |  | $ | 23,691 |  | $ | 18 |  | $ | 7,961 |  | $ | 45,755
| Year Ended December 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 year | $ | 1,762 |  | $ | 21,161 |  | $ | - |  | $ | 2,862 |  | $ | 25,785
Provision for acquired BBVAPR loans and ease losses accounted for under ASC 310-30 |  | 1,105 |  |  | 11,710 |  |  | - |  |  | 2,693 |  |  | 15,508
Loan pools fully charged-off |  | (14) |  |  | (66) |  |  | - |  |  | (202) |  |  | (282)
Allowance de-recognition |  | (171) |  |  | (9,353) |  |  | - |  |  | (431) |  |  | (9,955)
Balance at end of year | $ | 2,682 |  | $ | 23,452 |  | $ | - |  | $ | 4,922 |  | $ | 31,056
Allowance for Acquired Eurobank Loan Losses The changes in the allowance for loan and lease losses on acquired Eurobank loans for the years ended December 31, 2018, 2017 and 2016 were as follows:
| Year Ended December 31, 2018
| Loans Secured by 1-4 Family Residential Properties |  | Commercial |  | Consumer |  | Total
| (In thousands)
Allowance for loan and lease losses for acquired Eurobank loans: |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 15,187 |  | $ | 9,983 |  | $ | 4 |  | $ | 25,174
Provision for loan and lease losses, net |  | 1,806 |  |  | 761 |  |  | - |  |  | 2,567
Allowance de-recognition |  | (1,611) |  |  | (1,159) |  |  | - |  |  | (2,770)
Balance at end of year | $ | 15,382 |  | $ | 9,585 |  | $ | 4 |  | $ | 24,971
| Year Ended December 31, 2017
| Loans secured by 1-4 Family Residential Properties |  | Commercial |  | Consumer |  | Total
| (In thousands)
Allowance for loan and lease losses for acquired Eurobank loans: |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 11,947 |  | $ | 9,328 |  | $ | 6 |  | $ | 21,281
Provision for acquired Eurobank loan and lease losses, net |  | 5,045 |  |  | 1,680 |  |  | - |  |  | 6,725
Allowance de-recognition |  | (1,805) |  |  | (1,025) |  |  | (2) |  |  | (2,832)
Balance at end of year | $ | 15,187 |  | $ | 9,983 |  | $ | 4 |  | $ | 25,174
| Year Ended December 31, 2016
| Loans secured by 1-4 Family Residential Properties |  | Commercial |  | Consumer |  | Total
| (In thousands)
Allowance for loan and lease losses for Eurobank loans: |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year | $ | 22,570 |  | $ | 67,365 |  | $ | 243 |  | $ | 90,178
Provision (recapture) for acquired Eurobank loan and lease losses, net |  | 1,080 |  |  | 1,183 |  |  | (8) |  |  | 2,255
FDIC shared-loss portion of provision for covered loan and lease losses, net |  | 3,391 |  |  | - |  |  | - |  |  | 3,391
Loan pools fully charged-off |  | - |  |  | (134) |  |  | - |  |  | (134)
Allowance de-recognition |  | (15,094) |  |  | (59,086) |  |  | (229) |  |  | (74,409)
Balance at end of year | $ | 11,947 |  | $ | 9,328 |  | $ | 6 |  | $ | 21,281

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