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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2020
Allowance for Credit Losses [Abstract]  
Allowance for Credit Losses NOTE 6 – ALLOWANCE FOR CREDIT LOSSES

On January 1, 2020, Oriental adopted the new accounting standard that requires the measurement of the allowance for credit losses to be based on management’s best estimate of lifetime expected credit losses inherent in Oriental’s relevant financial assets. Upon adoption of the new accounting standard, Oriental recorded a $89.7 million increase in the allowance for credit losses on January 1, 2020. For Non-PCD loans, which represents 70% of the total loan portfolio, a $39.2 million allowance was recorded. For PCD loans, which represents 30% of the total loan portfolio, a $50.5 million adjustment was made through the allowance and loan balances with no impact in capital.

 

The allowance for credit losses is estimated using quantitative methods that consider a variety of factors such as historical loss experience, the current credit quality of the portfolio as well as an economic outlook over the life of the loan. Also included in the ACL are qualitative reserves to cover losses that are expected but, in Oriental's assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, Oriental incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. The scenarios that are chosen each quarter and the amount of weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal as well as third-party economists and industry trends. For more information on Oriental's credit loss accounting policies, including the allowance for credit losses, see Note 1 – Summary of Significant Accounting Policies.

 

As of January 1, 2020, Oriental used a probability weighted scenario approach as it is expected that Puerto Rico’s economic forecast should be close to an average between the baseline and a moderate recession. During the quarter ended March 31, 2020, there was a significant change in the economic outlook impacting the allowance for credit losses, with key economic factors such as the unemployment rate and gross domestic product projected to deteriorate sharply in the second quarter of 2020 driven by the impact of COVID-19. In response to these changes, Oriental reassessed the selection and probability weightings as well as analyzed various scenarios with immediate deterioration in economic variables followed by different recovery assumptions as part of the process for setting the allowance for credit loss reserve. Based on these analyses, the Oriental is now effectively fully weighted to a moderate recessionary economic environment within our forecast period. In addition, the allowance for credit losses at March 31, 2020 included additional qualitative reserves for certain segments that Oriental views as higher risk that may not be fully recognized through its quantitative models such as commercial loans concentrated in certain industries. As a result of these developments, Oriental has increased provision for credit losses in the quarter ended March 31, 2020 by $34.1 million. There are still many unknowns including the duration of the impact of COVID-19 on the economy and the results of the government fiscal and monetary actions along with recently implemented payment deferral programs.

 

Loans acquired in the Scotiabank PR & USVI Acquisition were recognized at fair value as of December 31, 2019, which included the impact of expected credit losses, and therefore, no allowance for credit losses was recorded at acquisition date.

 

The following table presents the activity in our allowance for credit losses by segment for the periods indicated:

 

Quarter Ended March 31, 2020

 

Commercial

 

Mortgage

 

Consumer

 

Auto

 

Total

 

(In thousands)

Allowance for credit losses Non-PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

25,993

 

$

8,727

 

$

18,446

 

$

31,878

 

$

85,044

Impact of ASC 326 adoption

 

3,562

 

 

10,980

 

 

8,418

 

 

16,238

 

 

39,198

Provision for credit losses

 

21,890

 

 

156

 

 

6,270

 

 

14,034

 

 

42,350

Charge-offs

 

(3,771)

 

 

(418)

 

 

(6,015)

 

 

(13,053)

 

 

(23,257)

Recoveries

 

1,522

 

 

249

 

 

644

 

 

4,211

 

 

6,626

Balance at end of period

$

49,196

 

$

19,694

 

$

27,763

 

$

53,308

 

$

149,961

 

Quarter Ended March 31, 2020

 

Commercial

 

Mortgage

 

Consumer

 

Auto

 

Total

 

(In thousands)

Allowance for credit losses PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

8,893

 

$

21,655

 

$

-

 

$

947

 

$

31,495

Impact of ASC 326 adoption

 

42,143

 

 

7,830

 

 

181

 

 

368

 

 

50,522

Provision for credit losses

 

(218)

 

 

6,139

 

 

364

 

 

(105)

 

 

6,180

Charge-offs

 

(2,357)

 

 

(5,143)

 

 

(431)

 

 

(375)

 

 

(8,306)

Recoveries

 

375

 

 

122

 

 

63

 

 

343

 

 

903

Balance at end of period

$

48,836

 

$

30,603

 

$

177

 

$

1,178

 

$

80,794

 

Quarter Ended March 31, 2020

 

Commercial

 

Mortgage

 

Consumer

 

Auto

 

Total

 

(In thousands)

Total Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

34,886

 

$

30,382

 

$

18,446

 

$

32,825

 

$

116,539

Impact of ASC 326 adoption

 

45,705

 

 

18,810

 

 

8,599

 

 

16,606

 

 

89,720

Provision for credit losses

 

21,672

 

 

6,295

 

 

6,634

 

 

13,929

 

 

48,530

Charge-offs

 

(6,128)

 

 

(5,561)

 

 

(6,446)

 

 

(13,428)

 

 

(31,563)

Recoveries

 

1,897

 

 

371

 

 

707

 

 

4,554

 

 

7,529

Balance at end of period

$

98,032

 

$

50,297

 

$

27,940

 

$

54,486

 

$

230,755

 

Quarter Ended March 31, 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

Provision for credit losses

 

(2,794)

 

 

2,767

 

 

4,372

 

 

6,988

 

 

11,333

Charge-offs

 

(587)

 

 

(1,086)

 

 

(4,121)

 

 

(11,371)

 

 

(17,165)

Recoveries

 

287

 

 

147

 

 

263

 

 

3,982

 

 

4,679

Balance at end of period

$

16,689

 

$

32,154

 

$

16,085

 

$

29,107

 

$

94,035

 

Quarter Ended March 31, 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

 

-

 

 

(440)

 

 

(85)

 

 

(525)

Recoveries

 

3

 

 

40

 

 

90

 

 

133

Provision (recapture) for acquired

loan and lease losses accounted for

under ASC 310-20

 

7

 

 

364

 

 

(73)

 

 

298

Balance at end of period

$

32

 

$

1,869

 

$

67

 

$

1,968

 

Quarter Ended March 31, 2019

 

Mortgage

 

Commercial

 

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

$

15,225

 

$

20,641

 

$

6,144

 

$

42,010

Provision (recapture) for acquired BBVAPR loans and lease losses accounted for under ASC 310-30

 

2,733

 

 

850

 

 

(2,314)

 

 

1,269

Allowance de-recognition

 

(57)

 

 

(758)

 

 

(331)

 

 

(1,146)

Balance at end of period

$

17,901

 

$

20,733

 

$

3,499

 

$

42,133

 

Quarter Ended March 31, 2019

 

Mortgage

 

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 for acquired Eurobank loan and lease losses

 

(202)

 

 

(449)

 

 

-

 

 

(651)

Allowance de-recognition

 

(70)

 

 

106

 

 

(4)

 

 

32

Balance at end of period

$

15,110

 

$

9,242

 

$

-

 

$

24,352

 

December 31, 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

$

6,874

 

$

8,215

 

$

-

 

$

-

 

$

15,089

Collectively evaluated for impairment

 

1,853

 

 

17,774

 

 

16,882

 

 

31,873

 

 

68,382

Total ending allowance balance

$

8,727

 

$

25,989

 

$

16,882

 

$

31,873

 

$

83,471

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

71,196

 

$

60,450

 

$

-

 

$

-

 

$

131,646

Collectively evaluated for impairment

 

506,220

 

 

1,607,044

 

 

361,638

 

 

1,277,732

 

 

3,752,634

Total ending loan balance

$

577,416

 

$

1,667,494

 

$

361,638

 

$

1,277,732

 

$

3,884,280

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

$

2

 

$

-

 

$

-

 

$

2

Collectively evaluated for impairment

 

2

 

 

1,564

 

 

5

 

 

1,571

Total ending allowance balance

$

4

 

$

1,564

 

$

5

 

$

1,573

Loans:

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

$

678

 

$

-

 

$

-

 

$

678

Collectively evaluated for impairment

 

1,463

 

 

20,794

 

 

135

 

 

22,392

Total ending loan balance

$

2,141

 

$

20,794

 

$

135

 

$

23,070