NOTE 6 – ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of Oriental’s allowance for loan and lease losses at June 30, 2019 and December 31, 2018 was as follows:

	June 30,		December 31,
	2019		2018
	(In thousands)
Allowance for loans and lease losses:
Originated and other loans and leases held for investment:
Mortgage	$	15,361	$	19,783
Commercial		29,234		30,326
Consumer		15,831		15,571
Auto and leasing		29,526		29,508
Total allowance for originated and other loans and lease losses		89,952		95,188

Acquired BBVAPR loans:
Accounted for under ASC 310-20 (Loans with revolving feature and/or
acquired at a premium)
Commercial		31		22
Consumer		1,617		1,905
Auto		37		135
		1,685		2,062
Accounted for under ASC 310-30 (Loans acquired with deteriorated
credit quality, including those by analogy)
Mortgage		25,208		15,225
Commercial		17,083		20,641
Auto		3,136		6,144
		45,427		42,010
Total allowance for acquired BBVAPR loans and lease losses		47,112		44,072
Acquired Eurobank loans:
Loans secured by 1-4 family residential properties		17,213		15,382
Commercial		8,365		9,585
Consumer		-		4
Total allowance for acquired Eurobank loan and lease losses		25,578		24,971
Total allowance for loan and lease losses	$	162,642	$	164,231

Oriental 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 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 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:

	Quarter Ended June 30, 2019
	Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	16,689	$	32,154	$	16,085	$	29,107	$	94,035
Charge-offs		(604)		(2,146)		(4,839)		(10,672)		(18,261)
Recoveries		316		177		327		4,877		5,697
Provision for loan and lease losses		(1,040)		(951)		4,258		6,214		8,481
Balance at end of period	$	15,361	$	29,234	$	15,831	$	29,526	$	89,952

	Six-Month Period Ended June 30, 2019
	Mortgage		Commercial		Consumer		Auto and Leasing		Total
	(In thousands)
Allowance for loan and lease losses for originated and other loans:
Balance at beginning of period	$	19,783	$	30,326	$	15,571	$	29,508	$	95,188
Charge-offs		(1,191)		(3,232)		(8,958)		(22,044)		(35,425)
Recoveries		603		323		590		8,858		10,374
Provision for loan and lease losses		(3,834)		1,817		8,628		13,204		19,815
Balance at end of period	$	15,361	$	29,234	$	15,831	$	29,526	$	89,952

	June 30, 2019
	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	$	10,615	$	9,168	$	-	$	-	$	19,783
Collectively evaluated for impairment		4,746		20,066		15,831		29,526		70,169
Total ending allowance balance	$	15,361	$	29,234	$	15,831	$	29,526	$	89,952
Loans:
Individually evaluated for impairment	$	83,093	$	83,102	$	-	$	-	$	166,195
Collectively evaluated for impairment		552,523		1,533,871		356,110		1,218,070		3,660,574
Total ending loan balance	$	635,616	$	1,616,973	$	356,110	$	1,218,070	$	3,826,769

	Quarter Ended June 30, 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 period	$	18,983	$	33,174	$	18,023	$	26,652	$	96,832
Charge-offs		(1,328)		(1,998)		(4,588)		(13,748)		(21,662)
Recoveries		466		227		240		5,280		6,213
(Recapture) provision for originated and other loan and lease losses		1,202		77		2,517		9,039		12,835
Balance at end of period	$	19,323	$	31,480	$	16,192	$	27,223	$	94,218

	Six-Month Period Ended June 30, 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 period	$	20,439	$	30,258	$	16,454	$	25,567	$	92,718
Charge-offs		(2,298)		(3,147)		(8,847)		(22,731)		(37,023)
Recoveries		786		409		479		9,056		10,730
Provision for originated and other loan and lease losses		396		3,960		8,106		15,331		27,793
Balance at end of period	$	19,323	$	31,480	$	16,192	$	27,223	$	94,218

	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

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:

	Quarter Ended June 30, 2019
	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 period	$	32	$	1,869	$	67	$	1,968
Charge-offs		(80)		(433)		(56)		(569)
Recoveries		2		78		71		151
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		77		103		(45)		135
Balance at end of period	$	31	$	1,617	$	37	$	1,685

	Six-Month Period Ended June 30, 2019
	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 period	$	22	$	1,905	$	135	$	2,062
Charge-offs		(80)		(873)		(141)		(1,094)
Recoveries		5		118		161		284
Provision (recapture) for acquired BBVAPR loan and lease losses accounted for under ASC 310-20		84		467		(118)		433
Balance at end of period	$	31	$	1,617	$	37	$	1,685

	June 30, 2019
	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	$	27	$	-	$	-	$	27
Collectively evaluated for impairment		4		1,617		37		1,658
Total ending allowance balance	$	31	$	1,617	$	37	$	1,685
Loans:
Individually evaluated for impairment	$	678	$	-	$	-	$	678
Collectively evaluated for impairment		1,571		21,966		996		24,533
Total ending loan balance	$	2,249	$	21,966	$	996	$	25,211

	Quarter Ended June 30, 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 period	$	37	$	2,659	$	488	$	3,184
Charge-offs		(5)		(420)		(88)		(513)
Recoveries		12		94		244		350
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20		42		24		(361)		(295)
Balance at end of period	$	86	$	2,357	$	283	$	2,726

	Six-Month Period Ended June 30, 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 period	$	42	$	3,225	$	595	$	3,862
Charge-offs		(5)		(1,442)		(213)		(1,660)
Recoveries		15		148		472		635
Provision (recapture) for acquired loan and lease losses accounted for under ASC 310-20		34		426		(571)		(111)
Balance at end of period	$	86	$	2,357	$	283	$	2,726

	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

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.

During the second quarter of 2019, Oriental adjusted to fair value several mortgage loans accounted under ASC 310-30, which are expected to be sold during 2019, with a net increment in provision for acquired BBVAPR and Eurobank loans by $8.5 million.

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, 2019
	Mortgage		Commercial		Consumer			Auto	Total
	(In thousands)
Allowance for loan and lease losses foracquired BBVAPR loans accounted for underASC 310-30:
Balance at beginning of period	$	17,901	$	20,733	$	-	$	3,499	42,133
Provision (recapture) for acquired BBVAPRloans and lease losses accounted for underASC 310-30		7,390		(79)		-		-	7,311
Allowance de-recognition		(83)		(3,571)		-		(363)	(4,017)
Balance at end of period	$	25,208	$	17,083	$	-	$	3,136	45,427


	Six-Month Period Ended June 30, 2019
	Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses foracquired BBVAPR loans accounted for underASC 310-30:
Balance at beginning of period	$	15,225	$	20,641	$	-	$	6,144	42,010
Provision (recapture) for acquired BBVAPRloans and lease losses accounted for under ASC 310-30		10,123		771		-		(2,314)	8,580
Allowance de-recogntion		(140)		(4,329)		-		(694)	(5,163)
Balance at end of period	$	25,208	$	17,083	$	-	$	3,136	45,427

	Quarter Ended June 30, 2018
	Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses foracquired BBVAPR loans accounted for underASC 310-30:
Balance at beginning of period	$	14,331	$	22,047	$	18	$	6,770	$	43,166
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30		236		1,306		-		-		1,542
Allowance de-recognition		-		(334)		-		(198)		(532)
Balance at end of period	$	14,567	$	23,019	$	18	$	6,572	$	44,176


	Six-Month Period Ended June 30, 2018
	Mortgage		Commercial		Consumer		Auto		Total
	(In thousands)
Allowance for loan and lease losses foracquired BBVAPR loans accounted for underASC 310-30:
Balance at beginning of period	$	14,085	$	23,691	$	18	$	7,961	$	45,755
Provision for acquired BBVAPR loans and lease losses accounted for under ASC 310-30		550		2,058		-		(887)		1,721
Allowance de-recognition		(68)		(2,730)		-		(502)		(3,300)
Balance at end of period	$	14,567	$	23,019	$	18	$	6,572	$	44,176

	Quarter Ended June 30, 2019
	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 period	$	15,110	$	9,242	$	-	$	24,352
Provision (recapture) for loan and lease losses, net		2,502		(724)		-		1,778
Allowance de-recognition		(399)	$	(153)	$	-		(552)
Balance at end of period	$	17,213	$	8,365	$	-	$	25,578


	Six-Month Period Ended June 30, 2019
	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 period	$	15,382	$	9,585	$	4	$	24,971
Provision (recapture) for loan and lease losses, net		2,300		(1,174)		-		1,126
Allowance de-recognition		(469)		(46)		(4)		(519)
Balance at end of period	$	17,213	$	8,365	$	-	$	25,578

	Quarter Ended June 30, 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 period	$	15,414	$	9,992	$	4	$	25,410
Provision (recapture) for acquired Eurobank loan and lease losses, net		605		60		-		665
Allowance de-recognition		(849)		(912)		-		(1,761)
Balance at end of period	$	15,170	$	9,140	$	4	$	24,314

	Six-Month Period Ended June 30, 2018
	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 period	$	15,187	$	9,983	$	4	$	25,174
Provision (recapture) for acquired Eurobank loan and lease losses, net		784		21		-		805
Allowance de-recognition		(801)		(864)		-		(1,665)
Balance at end of period	$	15,170	$	9,140	$	4	$	24,314