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Allowance for Credit Losses
 3 Months Ended
Mar. 31, 2021
Allowance for Credit Losses [Abstract]  
Allowance for Credit Losses NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

On January 1, 2020, OFG 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 OFG’s relevant financial assets. Upon adoption of the new accounting standard, OFG 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 OFG's assessment, may not be adequately represented in the quantitative methods or the economic assumptions. In its loss forecasting framework, OFG 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.

 

At March 31, 2021, OFG used a probability weighted scenario approach using Moody’s Economic Forecast Scenarios as it is expected that Puerto Rico’s economic performance should be close to the baseline scenario, and to a lesser extent to the S3 (pessimistic) scenario. In addition, the allowance for credit losses at March 31, 2021 continues to include qualitative reserves for certain segments that OFG views as higher risk that may not be fully recognized through its quantitative models such as commercial loans concentrated in certain industries. 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.

 

 

The following tables present the activity in OFG’s allowance for credit losses by segment for the quarters ended March 31, 2021 and 2020:

 

Quarter Ended March 31, 2021

 

Commercial

 

Mortgage

 

Consumer

 

Auto

 

Total

 

(In thousands)

Non-PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

45,779

 

$

19,687

 

$

25,253

 

$

70,296

 

$

161,015

Provision (recapture) for credit losses

 

1,542

 

 

(2,480)

 

 

(158)

 

 

4,039

 

 

2,943

Charge-offs

 

(68)

 

 

(787)

 

 

(4,469)

 

 

(9,083)

 

 

(14,407)

Recoveries

 

430

 

 

615

 

 

565

 

 

5,817

 

 

7,427

Balance at end of period

$

47,683

 

$

17,035

 

$

21,191

 

$

71,069

 

$

156,978

PCD:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

$

16,405

 

$

26,389

 

$

57

 

$

943

 

$

43,794

Provision (recapture) for credit losses

 

(2,492)

 

 

5,994

 

 

(4)

 

 

(172)

 

 

3,326

Charge-offs

 

(43)

 

 

(2,590)

 

 

(22)

 

 

(456)

 

 

(3,111)

Recoveries

 

436

 

 

146

 

 

21

 

 

383

 

 

986

Balance at end of period

$

14,306

 

$

29,939

 

$

52

 

$

698

 

$

44,995

Total allowance for credit losses at end of period

$

61,989

 

$

46,974

 

$

21,243

 

$

71,767

 

$

201,973

 

Quarter ended March 31, 2020

 

Commercial

 

Mortgage

 

Consumer

 

Auto and Leasing

 

Total

 

(In thousands)

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

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 (recapture) 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

Total allowance for loan and lease losses at end of period

$

98,032

 

$

50,297

 

$

27,940

 

$

54,486

 

$

230,755