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Allowance for Credit Losses

6 Months Ended

Jun. 30, 2021

Allowance for Credit Losses [Abstract]

NOTE 5 – ALLOWANCE FOR CREDIT LOSSES

On January 1, 2020, OFG adopted CECL, which 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.

The allowance for credit losses (“ACL”) 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 June 30, 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 June 30, 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 and six-month periods ended June 30, 2021 and 2020:

	Quarter Ended June 30, 2021
	Commercial		Mortgage		Consumer		Auto		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	47,683	$	17,035	$	21,191	$	71,069	$	156,978
(Recapture) provision for credit losses		(4,503)		(592)		74		(2,538)		(7,559)
Charge-offs		(653)		(268)		(2,897)		(5,170)		(8,988)
Recoveries		996		193		697		5,997		7,883
Balance at end of period	$	43,523	$	16,368	$	19,065	$	69,358	$	148,314
PCD:
Balance at beginning of period	$	14,306	$	29,939	$	52	$	698	$	44,995
(Recapture) provision for credit losses		(1,974)		1,727		(47)		(285)		(579)
Charge-offs		(6)		(1,742)		-		(226)		(1,974)
Recoveries		430		184		33		314		961
Balance at end of period	$	12,756	$	30,108	$	38	$	501	$	43,403
Total allowance for credit losses at end of period	$	56,279	$	46,476	$	19,103	$	69,859	$	191,717

	Six-Month Period Ended June 30, 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
(Recapture) provision for credit losses		(2,961)		(3,071)		(85)		1,501		(4,616)
Charge-offs		(720)		(1,056)		(7,366)		(14,253)		(23,395)
Recoveries		1,425		808		1,263		11,814		15,310
Balance at end of period	$	43,523	$	16,368	$	19,065	$	69,358	$	148,314
PCD:
Balance at beginning of period	$	16,405	$	26,389	$	57	$	943	$	43,794
(Recapture) provision for credit losses		(4,466)		7,721		(52)		(457)		2,746
Charge-offs		(50)		(4,332)		(22)		(682)		(5,086)
Recoveries		867		330		55		697		1,949
Balance at end of period	$	12,756	$	30,108	$	38	$	501	$	43,403
Total allowance for credit losses at end of period	$	56,279	$	46,476	$	19,103	$	69,859	$	191,717

	Quarter ended June 30, 2020
	Commercial		Mortgage		Consumer		Auto and Leasing		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	49,196	$	19,694	$	27,763	$	53,308	$	149,961
(Recapture) Provision for credit losses		(6,319)		455		7,935		13,156		15,227
Charge-offs		(497)		(185)		(4,187)		(13,300)		(18,169)
Recoveries		631		9		443		3,405		4,488
Balance at end of period	$	43,011	$	19,973	$	31,954	$	56,569	$	151,507
PCD:
Balance at beginning of period	$	48,836	$	30,603	$	177	$	1,178	$	80,794
Provision (recapture) for credit losses		177		1,915		(8)		385		2,469
Charge-offs		(386)		(2,178)		(30)		(600)		(3,194)
Recoveries		286		580		30		229		1,125
Balance at end of period	$	48,913	$	30,920	$	169	$	1,192	$	81,194
Total allowance for loan and lease losses at end of period	$	91,924	$	50,893	$	32,123	$	57,761	$	232,701

	Six-Month Period Ended June 30, 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		15,571		611		14,205		27,190		57,577
Charge-offs		(4,268)		(603)		(10,202)		(26,353)		(41,426)
Recoveries		2,153		258		1,087		7,616		11,114
Balance at end of period	$	43,011	$	19,973	$	31,954	$	56,569	$	151,507
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
(Recapture) provision for credit losses		(41)		8,054		356		280		8,649
Charge-offs		(2,743)		(7,321)		(461)		(975)		(11,500)
Recoveries		661		702		93		572		2,028
Balance at end of period	$	48,913	$	30,920	$	169	$	1,192	$	81,194
Total allowance for loan and lease losses at end of period	$	91,924	$	50,893	$	32,123	$	57,761	$	232,701