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Loans

12 Months Ended

Dec. 31, 2020

NOTE 6 - LOANS

Oriental’s loan portfolio is composed of four segments, commercial, mortgage, consumer, and auto. Loans are further segregated into classes which Oriental uses when assessing and monitoring the risk and performance of the portfolio.

The composition of the amortized cost basis of Oriental’s loan portfolio at December 31, 2020 and 2019 was as follows:

	December 31, 2020						December 31,
	Non-PCD		PCD		Total		2019
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	807,284	$	243,229	$	1,050,513	$	1,129,446
Other commercial and industrial		647,444		39,931		687,375		816,310
Commercial Paycheck Protection Program (PPP Loans)		289,218		-		289,218		-
US Loan Program		374,904		-		374,904		272,595
		2,118,850		283,160		2,402,010		2,218,351
Mortgage		823,443		1,459,932		2,283,375		2,493,365
Consumer:
Personal loans		313,257		1,043		314,300		375,505
Credit lines		43,805		351		44,156		53,113
Credit cards		56,185		-		56,185		75,272
Overdraft		305		-		305		216
Auto		1,534,269		27,533		1,561,802		1,522,973
		1,947,821		28,927		1,976,748		2,027,079
		4,890,114		1,772,019		6,662,133		6,738,795
Allowance for credit losses		(161,015)		(43,794)		(204,809)		(116,539)
Total loans held for investment		4,729,099		1,728,225		6,457,324		6,622,256
Mortgage loans held for sale		41,654		-		41,654		19,591
Other loans held for sale		2,281		-		2,281		-
Total loans held for sale		43,935		-		43,935		19,591
Total loans, net	$	4,773,034	$	1,728,225	$	6,501,259	$	6,641,847

At December 31, 2020 and 2019, Oriental had carrying balances of $99.1 million and $134.0 million, respectively, in loans held for investment granted to the Puerto Rico government, including its instrumentalities, public corporations and municipalities, as part of the institutional commercial loan segment. The Bank’s loans to the Puerto Rico government amounting to $98.0 million and $129.9 million at December 31, 2020 and 2019, respectively, are general obligations of municipalities secured by ad valorem taxation, without limitation as to rate or amount, on all taxable property within the issuing municipalities in current status, and one loan amounting to $1.1 million and $24.1 million, respectively, to a public corporation acquired in the Scotiabank PR & USVI Acquisition in non-accrual status. The good faith, credit and unlimited taxing power of each issuing municipality are pledged for the payment of its general obligations.The tables below present the aging of the amortized cost of loans held for investment at December 31, 2020 and 2019, by class of loans. Mortgage loans past due include $56.2 million and $75.2 million, respectively, of delinquent loans in the GNMA buy-back option program. Servicers of loans underlying GNMA mortgage-backed securities must report as their own assets the defaulted loans that they have the option (but not the obligation) to repurchase, even when they elect not to exercise that option.

	December 31, 2020
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Commercial
Commercial secured by real estate	$	2,781	$	750	$	17,862	$	21,393	$	785,891	$	807,284	$	-
Other commercial and industrial		1,674		234		4,695		6,603		930,059		936,662		-
US Loan Program		2,604		-		-		2,604		372,300		374,904		-
		7,059		984		22,557		30,600		2,088,250		2,118,850		-
Mortgage		7,385		14,953		101,528		123,866		699,577		823,443		3,974
Consumer
Personal loans		4,784		2,515		2,062		9,361		303,896		313,257		-
Credit lines		2,136		476		1,269		3,881		39,924		43,805		-
Credit cards		1,357		824		1,585		3,766		52,419		56,185		-
Overdraft		138		-		-		138		167		305		-
Auto		57,176		31,181		20,485		108,842		1,425,427		1,534,269		-
		65,591		34,996		25,401		125,988		1,821,833		1,947,821		-
Total loans	$	80,035	$	50,933	$	149,486	$	280,454	$	4,609,660	$	4,890,114	$	3,974

Upon adoption of CECL, Oriental elected to maintain pools of loans that were previously accounted for under ASC 310-30 and will continue to account for these pools as a unit of account. As such, PCD loans are not included in the table above.

	December 31, 2019
													Loans 90+
													Days Past
													Due and
	30-59 Days		60-89 Days		90+ Days		Total Past						Still
	Past Due		Past Due		Past Due		Due		Current		Total Loans		Accruing
	(In thousands)
Commercial
Commercial secured by real estate	$	994	$	946	$	17,495	$	19,435	$	847,271	$	866,706	$	-
Other commercial and industrial		7,584		371		2,716		10,671		712,855		723,526		-
US Loan Program		-		-		-		-		272,595		272,595		-
		8,578		1,317		20,211		30,106		1,832,721		1,862,827		-
Mortgage		9,285		13,105		94,109		116,499		783,096		899,595		2,418
Consumer
Personal loans		4,978		2,123		1,579		8,680		358,477		367,157		-
Credit lines		533		20		221		774		51,840		52,614		-
Credit cards		1,438		417		896		2,751		72,451		75,202		-
Overdraft		51		-		-		51		165		216		-
Auto		72,336		31,412		14,270		118,018		1,350,864		1,468,882		-
		79,336		33,972		16,966		130,274		1,833,797		1,964,071		-
Total loans	$	97,199	$	48,394	$	131,286	$	276,879	$	4,449,614	$	4,726,493	$	2,418

Before the CECL implementation, certain acquired loans were accounted for by Oriental in accordance with ASC 310-30.The carrying amount corresponding to acquired loans with deteriorated credit quality, including those accounted under ASC 310-30 by analogy, in the statements of financial condition at December 31, 2019 was as follows:

	December 31, 2019
		Scotiabank PR & USVI		BBVAPR		Eurobank		Total
	(In thousands)
Contractual required payments receivable:	$	2,147,249	$	1,086,367	$	117,107	$	3,350,723
Less: Non-accretable discount		294,424		340,466		4,285		639,175
Cash expected to be collected		1,852,825		745,901		112,822		2,711,548
Less: Accretable yield		458,885		214,886		34,441		708,212
Carrying amount, gross		1,393,940		531,015		78,381		2,003,336
Less: allowance for loan and lease losses		-		17,036		14,458		31,494
Carrying amount, net	$	1,393,940	$	513,979	$	63,923	$	1,971,842

The following table describes the accretable yield and non-accretable discount activity of acquired BBVAPR loans accounted for under ASC 310-30 for the years ended December 31, 2019 and 2018:

	Year Ended December 31, 2019
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of year	$	232,199	$	36,508	$	243	$	560	$	269,510
Accretion		(23,871)		(10,312)		(430)		(739)		(35,352)
Change in expected cash flows		(212)		23,080		(19)		739		23,588
Transfer from (to) non-accretable discount		(12,033)		(30,653)		253		(427)		(42,860)
Balance at end of year	$	196,083	$	18,623	$	47	$	133	$	214,886

Non-Accretable Discount Activity:
Balance at beginning of year	$	291,887	$	10,346	$	24,245	$	18,945	$	345,423
Change in actual and expected losses		(27,741)		(19,295)		(169)		(612)		(47,817)
Transfer (to) from accretable yield		12,033		30,653		(253)		427		42,860
Balance at end of year	$	276,179	$	21,704	$	23,823	$	18,760	$	340,466

	Year Ended December 31, 2018
	Mortgage		Commercial		Auto		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of year	$	258,498	$	46,764	$	2,766	$	885	$	308,913
Accretion		(27,248)		(14,160)		(2,360)		(871)		(44,639)
Change in expected cash flows		-		7,895		890		484		9,269
Transfer from (to) non-accretable discount		949		(3,991)		(1,053)		62		(4,033)
Balance at end of year	$	232,199	$	36,508	$	243	$	560	$	269,510

Non-Accretable Discount Activity:
Balance at beginning of year	$	299,501	$	10,596	$	23,050	$	19,284	$	352,431
Change in actual and expected losses		(6,665)		(4,241)		142		(277)		(11,041)
Transfer (to) from accretable yield		(949)		3,991		1,053		(62)		4,033
Balance at end of year	$	291,887	$	10,346	$	24,245	$	18,945	$	345,423

The following table describes the accretable yield and non-accretable discount activity of acquired Eurobank loans for the years ended December 31, 2019 and 2018:

	Year Ended December 31, 2019
	Mortgage		Commercial		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of year	$	38,389	$	3,310		-	$	-	$	41,699
Accretion		(4,999)		(4,611)		(14)		(164)		(9,788)
Change in expected cash flows		2,578		2,270		(145)		273		4,976
Transfer from (to) non-accretable discount		(1,947)		(549)		159		(109)		(2,446)
Balance at end of year	$	34,021	$	420	$	-	$	-	$	34,441

Non-Accretable Discount Activity:
Balance at beginning of year	$	2,826	$	-	$	-	$	133	$	2,959
Change in actual and expected losses		(3,051)		1,928		159		(156)		(1,120)
Transfer (to) from accretable yield		1,947		549		(159)		109		2,446
Balance at end of year	$	1,722	$	2,477	$	-	$	86	$	4,285


	Year Ended December 31, 2018
	Mortgage		Commercial		Leasing		Consumer		Total
	(In thousands)
Accretable Yield Activity:
Balance at beginning of year	$	42,921	$	6,751		-	$	-	$	49,672
Accretion		(5,964)		(6,430)		(52)		(389)		(12,835)
Change in expected cash flows		(1,129)		5,023		(329)		700		4,265
Transfer from (to) non-accretable discount		2,561		(2,034)		381		(311)		597
Balance at end of year	$	38,389	$	3,310	$	-	$	-	$	41,699

Non-Accretable Discount Activity:
Balance at beginning of year	$	5,334	$	276	$	-	$	235	$	5,845
Change in actual and expected losses		53		(2,310)		381		(413)		(2,289)
Transfer (to) from accretable yield		(2,561)		2,034		(381)		311		(597)
Balance at end of year	$	2,826	$	-	$	-	$	133	$	2,959

Non-accrual Loans

The following table presents the amortized cost basis of loans on nonaccrual status as of December 31, 2020:


	December 31, 2020
	Nonaccrual with		Nonaccrual with no
	Allowance		Allowance
	for Credit Loss		for Credit Loss		Total
	(In thousands)
Non-PCD:
Commercial
Commercial secured by real estate	$	15,225	$	21,462	$	36,687
Other commercial and industrial		2,138		3,174		5,312
		17,363		24,636		41,999
Mortgage		24,920		17,747		42,667
Consumer
Personal loans		1,752		377		2,129
Personal lines of credit		1,272		-		1,272
Credit cards		1,586		-		1,586
Auto and leasing		20,766		-		20,766
		25,376		377		25,753
Total non-accrual loans	$	67,659	$	42,760	$	110,419

PCD:
Commercial
Commercial secured by real estate	$	31,338	$	4,031	$	35,369
Other commercial and industrial		1,102		-		1,102
		32,440		4,031		36,471
Mortgage		1,003		-		1,003
Consumer
Personal loans		1		-		1
		1		-		1
Total non-accrual loans	$	33,444	$	4,031	$	37,475
	$	101,103	$	46,791	$	147,894

The following table presents the recorded investment in loans in non-accrual status by class of loans as of December 31, 2019:

	December 31,
	2019
	(In thousands)
Commercial
Commercial secured by real estate	$	32,720
Other commercial and industrial		9,886
		42,606
Mortgage		18,735
Consumer
Personal loans		4,164
Personal lines of credit		227
Credit cards		896
Auto and leasing		14,295
		19,582
Total non-accrual loans	$	80,923

Delinquent residential mortgage loans insured or guaranteed under applicable FHA and VA programs are classified as non-performing loans when they become 90 days or more past due but are not placed in non-accrual status until they become 12 months or more past due, since they are insured loans. Therefore, those loans are included as non-performing loans but excluded from non-accrual loans.

At December 31, 2020 and 2019, loans whose terms have been extended and which were classified as troubled-debt restructurings that were not included in non-accrual loans amounted to $109.2 million and $103.7 million, respectively, as they were performing under their new terms.

Modifications

The following tables present the troubled-debt restructurings in all loan portfolios during the years ended December 31, 2020, 2019 and 2018.

	Year Ended December 31, 2020
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	88	$	11,081	4.70%	332	$	10,151	4.13%	327
Commercial	8		14,896	5.45%	63		14,896	4.36%	77
Consumer	23		349	14.11%	64		391	10.57%	76
Auto	31		217	10.88%	74		219	11.02%	71

	Year Ended December 31, 2019
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	148	$	19,130	5.85%	376	$	17,991	5.09%	345
Commercial	5		2,070	7.23%	56		2,070	6.05%	67
Consumer	370		5,357	15.69%	66		5,398	11.50%	74
Auto	22		319	7.29%	70		326	8.97%	44

	Year Ended December 31, 2018
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Pre-Modification Weighted Average Rate	Pre-Modification Weighted Average Term (in Months)	Post-Modification Outstanding Recorded Investment		Post-Modification Weighted Average Rate	Post-Modification Weighted Average Term (in Months)
	(Dollars in thousands)
Mortgage	143	$	19,029	5.09%	342	$	18,237	4.41%	314
Commercial	23		26,019	5.75%	118		25,973	5.64%	136
Consumer	174		2,313	13.24%	51		2,332	9.86%	61
Auto	2		40	10.42%	37		40	10.28%	32

The following table presents troubled-debt restructurings for which there was a payment default during the years ended December 31, 2020, 2019 and 2018:

	Year ended December 31,
	2020			2019			2018
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(Dollars in thousands)
Mortgage	9	$	1,345	29	$	3,597	23	$	3,262
Commercial	-	$	-	-	$	-	4	$	2,141
Consumer	1	$	2	77	$	1,118	28	$	341
Auto	-	$	-	3	$	51	-	$	-

Oriental offers various types of concessions when modifying a loan. Concessions made to the original contractual terms of the loan typically consists of the deferral of interest and/or principal payments due to deterioration in the borrowers' financial condition. In these cases, the principal balance on the TDR had matured and/or was in default at the time of restructure, and there were no commitments to lend additional funds to the borrower during the years ended December 31, 2020, 2019, and 2018.

TDRs disclosed above were not related to Covid-19 modifications. As discussed in Note 1 to these financial statements, Section 4013 of CARES Act and the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (Revised)" provided banks an option to elect to not account for certain loan modifications related to Covid-19 as TDRs as long as the borrowers were not more than 30 days past due as of December 31, 2020 and at the time of modification program implementation, respectively, and meets other applicable criteria. Oriental’s loan deferrals outstanding balances at December 31, 2020 of approximately $95.7 million resulting from the Covid-19 pandemic were not classified as a TDR.

Collateral-dependent Loans

The table below present the amortized cost of collateral-dependent loans held for investment at December 31, 2020, by class of loans.

	December 31, 2020
	(In thousands)
Commercial loans:
Commercial secured by real estate	$	29,279
Total loans	$	29,279

PCD loans, except for single pooled loans, are not included in the table above as their unit of account is the loan pool.

Credit Quality Indicators

Oriental categorizes its loans into loan grades based on relevant information about the ability of borrowers to service their debt, such as economic conditions, portfolio risk characteristics, prior loss experience, and the results of periodic credit reviews of individual loans.

Oriental uses the following definitions for loan grades:

Pass: Loans classified as “pass” have a well-defined primary source of repayment very likely to be sufficient, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and capitalization better than industry standards.

Special Mention: Loans classified as “special mention” have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as “substandard” are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as “doubtful” have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, questionable and improbable.

Loss: Loans classified as “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be effected in the future.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass loans.

As of December 31, 2020 and based on the most recent analysis performed, the risk category of loans subject to risk rating by class of loans is as follows.

	Term Loans												Revolving
	Amortized Cost Basis by Origination Year												Loans
													Amortized
	2020		2019		2018		2017		2016		Prior		Cost Basis		Total
	(In thousands)
Commercial:
Commercial secured by real estate:
Loan grade:
Pass	$	113,474	$	105,156	$	106,283	$	81,338	$	44,008	$	187,189	$	30,686	$	668,134
Special Mention		10,592		20,605		5,233		11,771		8,514		3,090		37,680		97,485
Substandard		183		63		758		8,923		584		23,746		7,331		41,588
Doubtful		-		-		-		-		-		77		-		77
Loss		-		-		-		-		-		-		-		-
Total commercial secured by real estate		124,249		125,824		112,274		102,032		53,106		214,102		75,697		807,284
Other commercial and industrial:
Loan grade:
Pass		384,901		84,433		75,023		14,502		8,326		7,922		300,429		875,536
Special Mention		151		8,242		19,626		-		-		3,337		23,732		55,088
Substandard		207		66		486		164		2,809		119		2,122		5,973
Doubtful		-		-		-		-		-		-		65		65
Loss		-		-		-		-		-		-		-		-
Total other commercial and industrial:		385,259		92,741		95,135		14,666		11,135		11,378		326,348		936,662
US Loan Program:
Loan grade:
Pass		68,688		62,264		77,762		7,124		-		-		98,324		314,162
Special Mention		-		1,501		33,282		-		-		-		1,250		36,033
Substandard		7,156		-		17,553		-		-		-		-		24,709
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total US loan program:		75,844		63,765		128,597		7,124		-		-		99,574		374,904
Total commercial loans	$	585,352	$	282,330	$	336,006	$	123,822	$	64,241	$	225,480	$	501,619	$	2,118,850

At December 31, 2020, the balance of revolving loans converted to term loans was $21.0 million.

Oriental considers the performance of the loan portfolio and its impact on the allowance for credit losses. For mortgage and consumer loan classes, Oriental also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the amortized cost in mortgage and consumer loans based on payment activity as of December 31, 2020:

															Revolving Loans
	Term Loans												Revolving		Converted to
	Amortized Cost Basis by Origination Year												Loans		Term Loans
													Amortized		Amortized
	2020		2019		2018		2017		2016		Prior		Cost Basis		Cost Basis		Total
	(In thousands)
Mortgage:
Payment performance:
Performing	$	14,842	$	20,516	$	27,359	$	33,088	$	38,637	$	642,045	$	-	$	-	$	776,487
Nonperforming		-		347		722		894		950		44,043		-		-		46,956
Total mortgage loans:		14,842		20,863		28,081		33,982		39,587		686,088		-		-		823,443
Consumer:
Personal loans:
Payment performance:
Performing		88,653		115,295		58,009		28,424		13,565		7,181		-		-		311,127
Nonperforming		201		591		492		318		134		394		-		-		2,130
Total personal loans		88,854		115,886		58,501		28,742		13,699		7,575		-		-		313,257
Credit lines:
Payment performance:
Performing		-		-		-		-		-		-		42,531		-		42,531
Nonperforming		-		-		-		-		-		-		1,274		-		1,274
Total credit lines		-		-		-		-		-		-		43,805		-		43,805
Credit cards:
Payment performance:
Performing		-		-		-		-		-		-		54,599		-		54,599
Nonperforming		-		-		-		-		-		-		1,586		-		1,586
Total credit cards		-		-		-		-		-		-		56,185		-		56,185
Overdrafts:
Payment performance:
Performing		-		-		-		-		-		-		305		-		305
Nonperforming		-		-		-		-		-		-		-		-		-
Total overdrafts		-		-		-		-		-		-		305		-		305
Total consumer loans		88,854		115,886		58,501		28,742		13,699		7,575		100,295		-		413,552
Total mortgage and consumer loans	$	103,696	$	136,749	$	86,582	$	62,724	$	53,286	$	693,663	$	100,295	$	-	$	1,236,995

Oriental evaluates credit quality for auto loans and leases based on FICO score. The following table presents the amortized cost in auto loans and leases based on their most recent FICO score as of December 31, 2020:

	Term Loans
	Amortized Cost Basis by Origination Year

	2020		2019		2018		2017		2016		Prior		Total
	(In thousands)
Auto:
FICO score:
1-660		121,878		112,476		97,725		56,935		30,307		22,360		441,681
661-699		84,673		68,698		44,633		23,308		13,571		9,031		243,914
700+		173,834		214,287		164,205		85,743		45,947		32,177		716,193
No FICO		21,512		42,597		33,305		18,127		9,656		7,284		132,481
Total auto:	$	401,897	$	438,058	$	339,868	$	184,113	$	99,481	$	70,852	$	1,534,269

As of December 31, 2019, and based on the most recent analysis performed, the loan grading of gross loans, excluding loans accounted for under ASC 310-30 subject to loan grade by class of loans was as follows:

	December 31, 2019
	Loan Grades

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss
	(In thousands)
Commercial
Commercial secured by real estate	$	866,706	$	762,443	$	55,870	$	48,357	$	36	$	-
Other commercial and industrial		723,526		706,831		6,634		9,960		101		-
US Loan Program		272,595		262,745		9,850		-		-		-
Total Commercial	$	1,862,827	$	1,732,019	$	72,354	$	58,317	$	137	$	-

	December 31, 2019
	Loan Grades

	Balance				Special
	Outstanding		Pass		Mention		Substandard		Doubtful		Loss

Retail
Mortgage	$	899,595	$	805,486	$	-	$	94,109	$	-	$	-
Consumer:
Personal loans		367,157		365,579		-		1,578		-		-
Personal lines of credit		52,614		52,393		-		221		-		-
Credit cards		75,202		74,306		-		896		-		-
Overdrafts		216		165		-		51		-		-
Auto		1,468,882		1,454,612		-		14,270		-		-
Total consumer loans		1,964,071		1,947,055		-		17,016		-		-
Total retail loans	$	2,863,666	$	2,752,541	$	-	$	111,125	$	-	$	-