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Allowance for Credit Losses

9 Months Ended

Sep. 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 September 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 September 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 nine-month periods ended September 30, 2021 and 2020:

	Quarter Ended September 30, 2021
	Commercial		Mortgage		Consumer		Auto		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	43,523	$	16,368	$	19,065	$	69,358	$	148,314
(Recapture) provision for credit losses		(3,323)		240		259		676		(2,148)
Charge-offs		(7,518)		(160)		(2,370)		(4,989)		(15,037)
Recoveries		558		419		894		5,874		7,745
Balance at end of period	$	33,240	$	16,867	$	17,848	$	70,919	$	138,874
PCD:
Balance at beginning of period	$	12,756	$	30,108	$	38	$	501	$	43,403
(Recapture) provision for credit losses		(2,838)		649		(220)		(237)		(2,646)
Charge-offs		(68)		(1,008)		-		(124)		(1,200)
Recoveries		1,316		641		219		265		2,441
Balance at end of period	$	11,166	$	30,390	$	37	$	405	$	41,998
Total allowance for credit losses at end of period	$	44,406	$	47,257	$	17,885	$	71,324	$	180,872

	Nine-Month Period Ended September 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		(6,284)		(2,831)		174		2,177		(6,764)
Charge-offs		(8,238)		(1,216)		(9,736)		(19,242)		(38,432)
Recoveries		1,983		1,227		2,157		17,688		23,055
Balance at end of period	$	33,240	$	16,867	$	17,848	$	70,919	$	138,874
PCD:
Balance at beginning of period	$	16,405	$	26,389	$	57	$	943	$	43,794
(Recapture) provision for credit losses		(7,304)		8,370		(272)		(694)		100
Charge-offs		(118)		(5,340)		(22)		(806)		(6,286)
Recoveries		2,183		971		274		962		4,390
Balance at end of period	$	11,166	$	30,390	$	37	$	405	$	41,998
Total allowance for credit losses at end of period	$	44,406	$	47,257	$	17,885	$	71,324	$	180,872

	Quarter ended September 30, 2020
	Commercial		Mortgage		Consumer		Auto and Leasing		Total
	(In thousands)
Non-PCD:
Balance at beginning of period	$	43,011	$	19,973	$	31,954	$	56,569	$	151,507
(Recapture) Provision for credit losses		(1,771)		(564)		(378)		16,071		13,358
Charge-offs		(298)		(56)		(5,114)		(10,123)		(15,591)
Recoveries		253		269		663		5,950		7,135
Balance at end of period	$	41,195	$	19,622	$	27,125	$	68,467	$	156,409
PCD:
Balance at beginning of period	$	48,913	$	30,920	$	169	$	1,192	$	81,194
Provision (recapture) for credit losses		(1,262)		1,077		-		9		(176)
Charge-offs		(293)		(1,677)		(61)		(474)		(2,505)
Recoveries		91		89		-		211		391
Balance at end of period	$	47,449	$	30,409	$	108	$	938	$	78,904
Total allowance for loan and lease losses at end of period	$	88,644	$	50,031	$	27,233	$	69,405	$	235,313

	Nine-Month Period Ended September 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		13,799		47		13,827		43,261		70,934
Charge-offs		(4,566)		(659)		(15,316)		(36,476)		(57,017)
Recoveries		2,407		527		1,750		13,566		18,250
Balance at end of period	$	41,195	$	19,622	$	27,125	$	68,467	$	156,409
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		(1,303)		9,131		356		289		8,473
Charge-offs		(3,036)		(8,998)		(521)		(1,449)		(14,004)
Recoveries		752		791		92		783		2,418
Balance at end of period	$	47,449	$	30,409	$	108	$	938	$	78,904
Total allowance for loan and lease losses at end of period	$	88,644	$	50,031	$	27,233	$	69,405	$	235,313