LOAN PORTFOLIO

9 Months Ended

Sep. 30, 2016

NOTE 7 – LOANS HELD FOR INVESTMENT

The following table provides information about the loan portfolio held for investment:

		As of September 30,		As ofDecember 31,
		2016		2015
(In thousands)
Residential mortgage loans, mainly secured by first mortgages		$	3,299,942	$	3,344,719
Commercial loans:
Construction loans			124,298		156,195
Commercial mortgage loans			1,545,014		1,537,806
Commercial and Industrial loans (1)			2,167,011		2,246,513
Total commercial loans			3,836,323		3,940,514
Finance leases			229,577		229,165
Consumer loans			1,497,812		1,597,984
Loans held for investment			8,863,654		9,112,382
Allowance for loan and lease losses			(214,070)		(240,710)
Loans held for investment, net		$	8,649,584	$	8,871,672

(1)	As of September 30, 2016 and December 31, 2015, includes $949.9 million and $1.0 billion, respectively, of commercial loans that are secured by real estate but are not dependent upon the real estate for repayment.

Loans held for investment on which accrual of interest income had been discontinued as of the indicated dates were as follows:

(In thousands)		September 30,		December 31,
		2016		2015
Non-performing loans:
Residential mortgage		$	162,201	$	169,001
Commercial mortgage			191,449		51,333
Commercial and Industrial			137,016		137,051
Construction:
Land			11,761		12,174
Construction-commercial			36,953		39,466
Construction-residential			2,053		2,996
Consumer:
Auto loans			14,615		17,435
Finance leases			1,969		2,459
Other consumer loans			8,695		10,858
Total non-performing loans held for investment (1) (2)(3)		$	566,712	$	442,773

(1)	As of September 30, 2016 and December 31, 2015, excludes $8.1 million of non-performing loans held for sale.

(2)	Amount excludes purchased-credit impaired ("PCI") loans with a carrying value of approximately $168.1 million and $173.9 million as of September 30, 2016 and December 31, 2015, respectively, primarily mortgage loans acquired from Doral Bank in the first quarter of 2015 and from Doral Financial in the second quarter of 2014, as further discussed below. These loans are not considered non-performing due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using an estimated cash flow analysis.

(3)	Non-performing loans exclude $415.9 million and $414.9 million of Troubled Debt Restructuring ("TDR") loans that are in compliance with modified terms and in accrual status as of September 30, 2016 and December 31, 2015, respectively.

Loans in Process of Foreclosure

As of September 30, 2016, the recorded investment of residential mortgage loans collateralized by residential real estate property that are in the process of foreclosure amounted to $135.0 million. The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent in accordance with the guidelines of the Consumer Financial Protection Bureau (CFPB). Foreclosure procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Judicial states (Puerto Rico) require the foreclosure to be processed through the state’s court while foreclosures in non-judicial states are processed without court intervention. Foreclosure timelines vary according to state law and Investor Guidelines. Occasionally, foreclosures may be delayed due to mandatory mediations, bankruptcy proceedings, court delays and title issues, among other reasons.

The Corporation’s aging of the loans held for investment portfolio is as follows:
										Purchased Credit-Impaired Loans				Total loans held for investment		90 days past due and still accruing (2)
		30-59 Days Past Due		60-89 Days Past Due			90 days or more Past Due (1)	Total Past Due
As of September 30, 2016
(In thousands)												Current
Residential mortgage:
FHA/VA and other government-guaranteed loans (2) (3) (4)		$	-	$	5,310	$	81,677	$	86,987	$	-	$	44,949	$	131,936	$	81,677
Other residential mortgage loans (4)			-		87,425		179,648		267,073		165,014		2,735,919		3,168,006		17,447
Commercial:
Commercial and Industrial loans			44,967		500		138,484		183,951		-		1,983,060		2,167,011		1,468
Commercial mortgage loans (4)			-		3,436		196,240		199,676		3,127		1,342,211		1,545,014		4,791
Construction:
Land (4)			-		765		12,137		12,902		-		20,495		33,397		376
Construction-commercial (4)			-		-		36,953		36,953		-		38,460		75,413		-
Construction-residential (4)			-		-		2,721		2,721		-		12,767		15,488		668
Consumer:
Auto loans			63,470		13,743		14,615		91,828		-		766,969		858,797		-
Finance leases			8,199		2,312		1,969		12,480		-		217,097		229,577		-
Other consumer loans			8,192		4,824		12,806		25,822		-		613,193		639,015		4,111
Total loans held for investment		$	124,828	$	118,315	$	677,250	$	920,393	$	168,141	$	7,775,120	$	8,863,654	$	110,538
_____________
(1)	Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.
(2)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $29.6 million of residential mortgage loans insured by the FHA or guaranteed by the VA, which are over 15 months delinquent and are no longer accruing interest as of September 30, 2016.
(3)	As of September 30, 2016, includes $45.6 million of defaulted loans collateralizing Government National Mortgage Association ("GNMA") securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.
(4)	According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, land loans and construction-residential loans past due 30-59 days as of September 30, 2016 amounted to $8.7 million, $144.3 million, $7.6 million, $0.7 million and $0.3 million, respectively.

As of December 31, 2015		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due(1)								Total loans held for investment		90 days past due and still accruing (2)
(In thousands)		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due(1)			Total Past Due		Purchased Credit- Impaired Loans		Current	Total loans held for investment		90 days past due and still accruing (2)
Residential mortgage:
FHA/VA and other government-guaranteed loans (2) (3) (4)		$	-	$	6,048	$	90,168	$	96,216	$	-	$	46,925	$	143,141	$	90,168
Other residential mortgage loans (4)			-		90,406		185,018		275,424		170,766		2,755,388		3,201,578		16,017
Commercial:
Commercial and Industrial loans			5,577		6,412		150,893		162,882		-		2,083,631		2,246,513		13,842
Commercial mortgage loans (4)			-		24,729		63,805		88,534		3,147		1,446,125		1,537,806		12,472
Construction:
Land (4)			-		161		12,350		12,511		-		39,363		51,874		176
Construction-commercial			-		11,722		39,466		51,188		-		32,142		83,330		-
Construction-residential (4)			-		-		6,042		6,042		-		14,949		20,991		3,046
Consumer:
Auto loans			70,836		16,787		17,435		105,058		-		829,922		934,980		-
Finance leases			7,664		3,100		2,459		13,223		-		215,942		229,165		-
Other consumer loans			9,462		5,524		15,124		30,110		-		632,894		663,004		4,266
Total loans held for investment		$	93,539	$	164,889	$	582,760	$	841,188	$	173,913	$	8,097,281	$	9,112,382	$	139,987
____________
(1)	Includes non-performing loans and accruing loans that are contractually delinquent 90 days or more (i.e. FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.
(2)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past-due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $37.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA, which are over 15 months delinquent and are no longer accruing interest as of December 31, 2015.
(3)	As of December 31, 2015, includes $38.5 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.
(4)	According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, land loans and construction-residential loans past due 30-59 days as of December 31, 2015 amounted to $11.0 million, $162.9 million, $38.6 million, $5.7 million and $0.8 million, respectively.

The Corporation’s credit quality indicators by loan type as of September 30, 2016 and December 31, 2015 are summarized below:

		Commercial Credit Exposure-Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
September 30, 2016		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
(In thousands)
Commercial mortgage		$	218,523	$	36,211	$	-	$	254,734	$	1,545,014
Construction:
Land			20,175		-		-		20,175		33,397
Construction-commercial			36,953		-		-		36,953		75,413
Construction-residential			2,053		-		-		2,053		15,488
Commercial and Industrial			159,498		72,806		445		232,749		2,167,011

		Commercial Credit Exposure-Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
December 31, 2015		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
(In thousands)
Commercial mortgage		$	252,941	$	140	$	-	$	253,081	$	1,537,806
Construction:
Land			14,035		1		-		14,036		51,874
Construction-commercial			39,466		-		-		39,466		83,330
Construction-residential			2,996		-		-		2,996		20,991
Commercial and Industrial			140,827		71,341		354		212,522		2,246,513
_________
(1)	Excludes $8.1 million as of September 30, 2016 and December 31, 2015, of construction-land non-performing loans held for sale.

The Corporation considers a loan as adversely classified if its risk rating is Substandard, Doubtful or Loss. These categories are defined as follows:

Substandard- A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must 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- Doubtful classifications have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. A Doubtful classification may be appropriate in cases where significant risk exposures are perceived, but loss cannot be determined because of specific reasonable pending factors which may strengthen the credit in the near term.

Loss- Assets classified 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 basically worthless asset even though partial recovery may be affected in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.

		Consumer Credit Exposure-Credit Risk Profile based on Payment activity
		Residential Real Estate				Consumer
September 30, 2016		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
(In thousands)
Performing		$	131,936	$	2,840,791	$	844,182	$	227,608	$	630,320
Purchased Credit-Impaired (2)			-		165,014		-		-		-
Non-performing			-		162,201		14,615		1,969		8,695
Total		$	131,936	$	3,168,006	$	858,797	$	229,577	$	639,015

(1)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $29.6 million of residential mortgage loans insured by the FHA or guaranteed by the VA, which are over 15 months delinquent and are no longer accruing interest as of September 30, 2016.

(2)	PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.


		Consumer Credit Exposure-Credit Risk Profile based on Payment activity
			Residential Real Estate			Consumer
December 31, 2015		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
(In thousands)
Performing		$	143,141	$	2,861,811	$	917,545	$	226,706	$	652,146
Purchased Credit-Impaired (2)			-		170,766		-		-		-
Non-performing			-		169,001		17,435		2,459		10,858
Total		$	143,141	$	3,201,578	$	934,980	$	229,165	$	663,004

(1)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA or guaranteed by the VA as past due loans 90 days and still accruing as opposed to non-performing loans since the principal repayment is insured. These balances include $37.3 million of residential mortgage loans insured by the FHA or guaranteed by the VA, which are over 15 months delinquent and are no longer accruing interest as of December 31, 2015.

(2)	PCI loans are excluded from non-performing statistics due to the application of the accretion method, under which these loans will accrete interest income over the remaining life of the loans using estimated cash flow analysis.

The following tables present information about impaired loans, excluding PCI loans, which are reported separately, as discussed below:

Impaired Loans
(In thousands)
									Quarter Ended				Nine-Month Period Ended

										September 30, 2016
	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance		Year-To-Date Average Recorded Investment		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
As of September 30, 2016
With no related allowance recorded:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		64,198		78,361		-		67,024		139		103		376		496
Commercial:
Commercial mortgage loans		51,974		63,759		-		56,826		206		119		599		609
Commercial and Industrial Loans		17,069		26,672		-		20,407		13		-		13		-
Construction:
Land		60		89		-		60		-		-		-		-
Construction-commercial		-		-		-		-		-		-		-		-
Construction-residential		956		1,531		-		956		-		-		-		-
Consumer:
Auto loans		888		888		-		901		6		-		10		-
Finance leases		168		168		-		168		1		-		1		-
Other consumer loans		3,770		5,045		-		3,892		11		25		59		80
	$	139,083	$	176,513	$	-	$	150,234	$	376	$	247	$	1,058	$	1,185
With an allowance recorded:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		379,841		428,395		9,667		385,052		4,396		375		13,160		1,192
Commercial:
Commercial mortgage loans		146,526		166,066		25,907		152,753		136		57		339		179
Commercial and Industrial Loans		161,105		189,683		28,668		171,575		618		49		1,708		203
Construction:
Land		9,346		13,534		903		9,395		21		18		52		35
Construction-commercial		36,953		38,781		1,977		38,516		-		-		-		-
Construction-residential		392		551		124		392		-		-		-		-
Consumer:
Auto loans		24,135		24,135		3,674		25,913		476		-		1,379		-
Finance leases		2,408		2,408		62		2,493		48		-		150		-
Other consumer loans		13,065		13,448		1,700		13,868		356		15		1,005		32
	$	773,771	$	877,001	$	72,682	$	799,957	$	6,051	$	514	$	17,793	$	1,641
Total:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		444,039		506,756		9,667		452,076		4,535		478		13,536		1,688
Commercial:
Commercial mortgage loans		198,500		229,825		25,907		209,579		342		176		938		788
Commercial and Industrial Loans		178,174		216,355		28,668		191,982		631		49		1,721		203
Construction:
Land		9,406		13,623		903		9,455		21		18		52		35
Construction-commercial		36,953		38,781		1,977		38,516		-		-		-		-
Construction-residential		1,348		2,082		124		1,348		-		-		-		-
Consumer:
Auto loans		25,023		25,023		3,674		26,814		482		-		1,389		-
Finance leases		2,576		2,576		62		2,661		49		-		151		-
Other consumer loans		16,835		18,493		1,700		17,760		367		40		1,064		112
	$	912,854	$	1,053,514	$	72,682	$	950,191	$	6,427	$	761	$	18,851	$	2,826

(In thousands)

	Recorded Investment		Unpaid Principal Balance		Related Specific Allowance		Average Recorded Investment
As of December 31, 2015
With no related allowance recorded:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		65,495		74,146		-		67,282
Commercial:
Commercial mortgage loans		54,048		66,448		-		54,967
Commercial and Industrial Loans		27,492		29,957		-		28,326
Construction:
Land		-		-		-		-
Construction-commercial		39,466		40,000		-		39,736
Construction-residential		3,046		3,046		-		3,098
Consumer:
Auto loans		-		-		-		-
Finance leases		-		-		-		-
Other consumer loans		2,618		4,300		-		2,766
	$	192,165	$	217,897	$	-	$	196,175
With an allowance recorded:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		395,173		440,947		21,787		398,790
Commercial:
Commercial mortgage loans		27,479		40,634		3,073		30,518
Commercial and Industrial Loans		143,214		164,050		18,096		148,547
Construction:
Land		9,578		13,758		1,060		9,727
Construction-commercial		-		-		-		-
Construction-residential		1,426		2,180		142		1,476
Consumer:
Auto loans		21,581		21,581		6,653		23,531
Finance leases		2,077		2,077		86		2,484
Other consumer loans		13,816		14,043		1,684		14,782
	$	614,344	$	699,270	$	52,581	$	629,855
Total:
FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		460,668		515,093		21,787		466,072
Commercial:
Commercial mortgage loans		81,527		107,082		3,073		85,485
Commercial and Industrial Loans		170,706		194,007		18,096		176,873
Construction:
Land		9,578		13,758		1,060		9,727
Construction-commercial		39,466		40,000		-		39,736
Construction-residential		4,472		5,226		142		4,574
Consumer:
Auto loans		21,581		21,581		6,653		23,531
Finance leases		2,077		2,077		86		2,484
Other consumer loans		16,434		18,343		1,684		17,548
	$	806,509	$	917,167	$	52,581	$	826,030

Interest income of approximately $7.8 million ($6.9 million accrual basis and $0.9 million cash basis) and $24.8 million ($19.8 million accrual basis and $5.0 million cash basis) was recognized on impaired loans for the third quarter and nine-month period ended September 30, 2015, respectively.

The following tables show the activity for impaired loans and the related specific reserve for the quarters and nine-month periods ended September 30, 2016 and 2015:

		Quarter Ended				Nine-Month Period Ended
		September 30,				September 30,
(In thousands)			2016		2015		2016		2015

Impaired Loans:
Balance at beginning of period		$	953,774	$	824,816	$	806,509	$	945,407
Loans determined impaired during the period			26,613		37,528		261,544		135,350
Charge-offs (1)			(30,426)		(7,498)		(50,027)		(90,026)
Loans sold, net of charge-offs			-		-		-		(67,836)
Increases to impaired loans-additional disbursements			1,091		408		2,852		2,524
Reclassification from loans held for sale (2)			-		40,005		-		40,005
Foreclosures			(11,856)		(12,858)		(28,466)		(33,044)
Loans no longer considered impaired			(2,674)		(25,877)		(27,560)		(39,062)
Paid in full or partial payments			(23,668)		(13,811)		(51,998)		(50,605)
Balance at end of period		$	912,854	$	842,713	$	912,854	$	842,713

(1)	For the nine-month period ended September 30, 2015, includes $63.9 million of charge-offs related to a bulk sale of assets completed in the second quarter of 2015, mostly comprised of non-performing and adversely classified commercial loans, as further discussed below.
(2)	During the third quarter of 2015, upon the signing of a new agreement with the borrower, the Corporation changed its intent to sell a $40.0 million construction loan in the Virgin Islands. Accordingly, the loan was transferred back from held for sale to held for investment.


	Quarter Ended				Nine-Month Period Ended
	September 30,				September 30,
(In thousands)	2016		2015		2016		2015

Specific Reserve:
Balance at beginning of period	$	86,372	$	49,918	$	52,581		55,205
Provision for loan losses		16,619		9,439		70,011		81,796
Net charge-offs		(30,309)		(7,498)		(49,910)		(85,142)
Balance at end of period	$	72,682	$	51,859	$	72,682	$	51,859

PCI Loans

The Corporation acquired PCI loans accounted for under ASC 310-30 as part of the transaction closed on February 27, 2015 in which FirstBank acquired 10 Puerto Rico branches of Doral Bank, and acquired certain assets, including PCI loans, and assumed deposits, through an alliance with Banco Popular of Puerto Rico, which was the successful lead bidder with the FDIC on the failed Doral Bank, as well as other co-bidders. The Corporation also acquired PCI loans in previously completed asset acquisitions that are accounted for under ASC 310-30. These previous transactions include the acquisition from Doral Financial in the second quarter of 2014 of all its rights, title and interest in first and second residential mortgages loans in full satisfaction of secured borrowings owed by such entity to FirstBank.

Under ASC 310-30, the acquired PCI loans were aggregated into pools based on similar characteristics (i.e. delinquency status, loan terms). Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Since the loans are accounted for by the Corporation under ASC 310-30, they are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation recognizes additional losses on this portfolio when it is probable that the Corporation will be unable to collect all cash flows expected as of the acquisition date plus additional cash flows expected to be collected arising from changes in estimates after the acquisition date.

The carrying amount of PCI loans follows:

	September 30,		December 31,
	2016		2015
(In thousands)
Residential mortgage loans	$	165,014	$	170,766
Commercial mortgage loans		3,127		3,147
Total PCI loans	$	168,141	$	173,913
Allowance for loan losses		(6,857)		(3,962)
Total PCI loans, net of allowance for loan losses	$	161,284	$	169,951

The following tables present PCI loans by past due status as of September 30, 2016 and December 31, 2015:


As of September 30, 2016		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
(In thousands)		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
Residential mortgage loans (1)		$	-	$	12,048	$	26,621	$	38,669	$	126,345	$	165,014
Commercial mortgage loans (1)			-		-		1,283		1,283		1,844		3,127
		$	-	$	12,048	$	27,904	$	39,952	$	128,189	$	168,141
_____________
(1)	According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage and commercial mortgage loans are considered past due when the borrower is in arrears two or more monthly payments. PCI residential mortgage loans and commercial mortgage loans past due 30-59 days as of September 30, 2016 amounted to $22.3 million and $0.4 million, respectively.


As of December 31, 2015		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
(In thousands)		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
Residential mortgage loans (1)		$	-	$	16,094	$	22,218	$	38,312	$	132,454	$	170,766
Commercial mortgage loans (1)			-		-		992		992		2,155		3,147
		$	-	$	16,094	$	23,210	$	39,304	$	134,609	$	173,913

(1)	According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage and commercial mortgage loans are considered past due when the borrower is in arrears two or more monthly payments. PCI residential mortgage loans past due 30-59 days as of December 31, 2015 amounted to $23.6 million.

Initial Fair Value and Accretable Yield of PCI Loans

At acquisition, the Corporation estimated the cash flows the Corporation expected to collect on PCI loans. Under the accounting guidance for PCI loans, the difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. This difference is neither accreted into income nor recorded on the Corporation’s consolidated statement of financial condition. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans, using the effective-yield method.

Changes in accretable yield of acquired loans

Subsequent to an acquisition of loans, the Corporation is required to periodically evaluate its estimate of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Subsequent changes in the estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications from nonaccretable yield to accretable yield. Increases in the cash flows expected to be collected will generally result in an increase in interest income over the remaining life of the loan or pool of loans. Decreases in expected cash flows due to further credit deterioration will generally result in an impairment charge recognized in the Corporation’s provision for loan and lease losses, resulting in an increase to the allowance for loan losses. During the first nine months of 2016, the Corporation increased by $2.9 million to $6.9 million the reserve related to PCI loans acquired from Doral Financial in 2014. The reserve is driven by the revisions to the expected cash flows of the portfolio for the remaining term of the loan pool based on expected performance and market conditions.

Changes in the accretable yield of PCI loans for the quarters and nine-month periods ended September 30, 2016 and 2015 were as follows:

	Quarter Ended				Nine-Month Period Ended
	September 30,		September 30,		September 30,		September 30,
	2016		2015		2016		2015
(In thousands)
Balance at beginning of period	$	122,179	$	124,288	$	118,385	$	82,460
Additions (accretable yield at acquisition
of loans from Doral)		-		-		-		38,319
Accretion recognized in earnings		(2,875)		(3,411)		(8,691)		(8,695)
Reclassification from non-accretable		-		1,348		9,610		10,141
Balance at end of period	$	119,304	$	122,225	$	119,304	$	122,225


Changes in the carrying amount of loans accounted for pursuant to ASC 310-30 are as follows:
		Quarter Ended				Nine-Month Period Ended
		September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
(In thousands)
Balance at beginning of period		$	169,690	$	178,494	$	173,913	$	102,604
Additions (1)			-		-		-		79,889
Accretion			2,875		3,411		8,691		8,695
Collections			(4,184)		(5,663)		(13,136)		(14,946)
Foreclosures			(240)		(157)		(1,327)		(157)
Ending balance		$	168,141	$	176,085	$	168,141	$	176,085
Allowance for loan losses			(6,857)		(3,163)		(6,857)		(3,163)
Ending balance, net of allowance for loan losses		$	161,284	$	172,922	$	161,284	$	172,922

(1)	For the nine-month period ended September 30, 2015, additions represents the estimated fair value of PCI loans acquired from Doral Bank at the date of acquisition.

Changes in the allowance for loan losses related to PCI loans follows:


	Quarter Ended				Nine-Month Period Ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
	(In thousands)
Balance at beginning of period	$	6,857	$	3,163	$	3,962	$	-
Provision for loan losses		-		-		2,895		3,163
Balance at end of period	$	6,857	$	3,163	$	6,857	$	3,163

The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $210.6 million as of September 30, 2016 (December 2015 - $218.1 million).

Purchases and Sales of Loans

During the first nine months of 2016, the Corporation purchased $65.2 million of residential mortgage loans consistent with a seasoned strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. Generally, the loans purchased from mortgage bankers were conforming residential mortgage loans. Purchases of conforming residential mortgage loans provide the Corporation the flexibility to retain or sell the loans, including through securitization transactions, depending upon the Corporation’s interest rate risk management strategies. When the Corporation sells such loans, it generally keeps the servicing of the loans.

In the ordinary course of business, the Corporation sells residential mortgage loans (originated or purchased) to GNMA and government-sponsored entities (“GSEs”) such as Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”), which generally securitize the transferred loans into mortgage-backed securities for sale into the secondary market. The Corporation sold approximately $108.5 million of performing residential mortgage loans to FNMA and FHLMC during the first nine months of 2016. Also, during the first nine months of 2016, the Corporation sold $238.6 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities. The Corporation’s continuing involvement in these sold loans consists primarily of servicing the loans. In addition, the Corporation agreed to repurchase loans when it breaches any of the representations and warranties included in the sale agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines (i.e., ensuring that the mortgage was properly underwritten according to established guidelines).

For loans sold to GNMA, the Corporation holds an option to repurchase individual delinquent loans issued on or after January 1, 2003 when the borrower fails to make any payment for three consecutive months. This option gives the Corporation the ability, but not the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA.

Under ASC Topic 860, Transfer and Servicing, once the Corporation has the unilateral ability to repurchase the delinquent loan, it is considered to have regained effective control over the loan and is required to recognize the loan and a corresponding repurchase liability on the balance sheet regardless of the Corporation’s intent to repurchase the loan.

During the first nine months of 2016 and 2015, the Corporation repurchased pursuant to its repurchase option with GNMA $20.9 million and $10.6 million, respectively, of loans previously sold to GNMA. The principal balance of these loans is fully guaranteed and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent interest payment advanced to GNMA computed at the loan’s interest rate and the interest payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA. The Corporation generally remediates any breach of representations and warranties related to the underwriting of such loans according to established GNMA guidelines without incurring losses. The Corporation does not maintain a liability for estimated losses as a result of breaches in representations and warranties.

Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation repurchased at par loans previously sold to FNMA and FHLMC in the amount of $0.7 million and $1.3 million during the first nine months of 2016 and 2015, respectively. The Corporation’s risk of loss with respect to these loans is also minimal as these repurchased loans are generally performing loans with documentation deficiencies. No losses related to breaches of representations and warranties were incurred in the first nine months of 2016. Historically, losses experienced on these loans have been immaterial. As a consequence, as of September 30, 2016, the Corporation does not maintain a liability for estimated losses on loans expected to be repurchased as a result of breaches in loan and servicer representations and warranties.

In addition, the Corporation sold $20.2 million and $20.0 million in commercial mortgage loan participations during the first nine months of 2016 and 2015, respectively.

Bulk Sale of Assets

During the second quarter of 2015, the Corporation completed the sale of commercial and construction loans with a book value of $147.5 million ($90.7 million of commercial mortgage loans, $45.8 million of commercial and industrial loans, and $11.0 million of construction loans), comprised mostly of non-performing and adversely classified loans, as well as other real estate owned (“OREO”) with a book value of $2.9 million, in a cash transaction. The sales price of this bulk sale was $87.3 million. Approximately $15.3 million of reserves had been allocated to the loans. This transaction resulted in total charge-offs of $61.4 million and an incremental pre-tax loss of $48.7 million, including $0.9 million in professional service fees directly attributable to the bulk sale.

Loan Portfolio Concentration

The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, First Bank, also lends in the USVI and BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment of $8.9 billion as of September 30, 2016, approximately 78% have credit risk concentration in Puerto Rico, 15% in the United States, and 7% in the USVI and BVI.

As of September 30, 2016, the Corporation had $134.0 million outstanding (book value of $126.2 million) in credit facilities extended to the Puerto Rico government, its municipalities, and public corporations, compared to $153.2 million outstanding as of December 31, 2015. In addition, the outstanding balance of credit facilities granted to the government of the Virgin Islands amounted to $65.6 million as of September 30, 2016, compared to $126.2 million as of December 31, 2015. Approximately $91.4 million of the granted credit facilities outstanding ($83.7 million book value) consisted of loans to public corporations, including a direct exposure to the Puerto Rico Electric Power Authority (“PREPA”) with an outstanding balance of $74.6 million ($66.9 million book value) as of September 30, 2016, and approximately $6.9 million consisted of loans to units of the Puerto Rico central government. The PREPA credit facility was placed in non-accrual status in the first quarter of 2015, and interest payments are recorded on a cost-recovery basis. In addition, the Corporation had $35.7 million of loans extended to municipalities in Puerto Rico, which in most cases are supported by assigned property tax revenues. Municipalities’ revenues are independent of the Puerto Rico central government. These municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and loans. Late in 2015, the GDB and the Municipal Revenue Collection Center (CRIM) signed a deed of trust. Through this deed, the GDB, as fiduciary, is bound to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another depository financial institution in Puerto Rico.

Furthermore, as of September 30, 2016, the Corporation had $128.0 million outstanding (book value of $112.8 million) in financings to the hotel industry in Puerto Rico under which the borrower and the operations of the underlying collateral are the primary sources of repayment and the Puerto Rico Tourism Development Fund (“TDF”) provides a secondary guarantee for payment performance, compared to $129.4 million outstanding as of December 31, 2015. These facilities were placed in non-accrual status and classified as impaired in the first quarter of 2016, and interest payments are now applied against principal. Approximately $1.6 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. As of the date of filing of this Form 10-Q, the largest of these three facilities is current on contractual payments as its operations are generating the cash flows to cover payments. The Corporation has been receiving partial payments from the other two facilities since their operations are insufficient to cover the entire contractual payments and the Corporation is not receiving collections from the TDF guarantee. As such, these two facilities are collateral dependent loans and charge-offs amounting to $13.7 million were recorded in the third quarter of 2016, of which $12.8 million was charged against specific reserves established in prior periods. These loans have been adversely classified since the third quarter of 2015. The Corporation’s collections of principal and interest from the TDF in the first half of 2016 amounted to $0.6 million compared to $5.3 million in the entire 2015 year.

The TDF is a subsidiary of the GDB that facilitates private sector financings to Puerto Rico’s hotel industry. Adverse developments related to the Puerto Rico government’s fiscal situation introduced additional uncertainty regarding the TDF’s ability to honor its guarantee, including the enactment of the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (“Act 21”), which gives Puerto Rico’s governor emergency powers to deal with Puerto Rico’s challenging fiscal situation, including the ability to declare a moratorium on all bonds and other payments. On June 30, 2016, pursuant to Act 21, the Puerto Rico governor ordered a moratorium on the payment of $780 million of the Puerto Rico Government’s general obligations and the debt of certain other instrumentalities due on July 1, 2016. This followed a default on the principal payment of $367 million of GDB notes due on May 1, 2016. Puerto Rico’s governor also issued an executive order intended to protect the GDB’s liquidity by allowing withdrawals only to fund necessary costs for essential services such as health, public safety and education services. Recently, the GDB defaulted on a $28 million payment of interest due to its creditors on August 1, 2016, including interest due on GDB bonds held by the Corporation.

As of September 30, 2016, the total reserve to book value coverage ratio related to commercial loans extended to or guaranteed by the Puerto Rico Government (excluding municipalities) was 16% and the loans are being carried at 76% of unpaid principal balance, net of reserves and accumulated charge offs.

In addition, the Corporation had $121.4 million in indirect exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority. Residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority are secured by the underlying properties and the guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75 million of the principal guaranteed under the mortgage loans insurance program. According to the most recently released audited financial statements of the Puerto Rico Housing Financing Authority, as of June 30, 2015, the Puerto Rico Housing Finance Authority’s mortgage loans insurance program covered loans aggregating approximately $552 million. The regulations adopted by the Puerto Rico Housing Finance Authority require the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance fund. As of June 30, 2015, the most recent date as to which information is available, the Puerto Rico Housing Finance Authority had a restricted net position for such purposes of approximately $77.4 million.

The Corporation cannot predict at this time the impact that the current fiscal situation of the Commonwealth of Puerto Rico, including the payment defaults on certain bonds, the uncertainty about the debt restructuring process, and the various legislative and other measures that have been and could be adopted by the Puerto Rico government in response to such fiscal situation, will have on the Puerto Rico economy and on the Corporation’s financial condition and results of operations.

Troubled Debt Restructurings

The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines. Depending upon the nature of borrowers’ financial condition, restructurings or loan modifications through this program as well as other restructurings of individual commercial, commercial mortgage, construction, and residential mortgage loans fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include the refinancing of any past-due amounts, including interest and escrow, the extension of the maturity of the loan and modifications of the loan rate. As of September 30, 2016, the Corporation’s total TDR loans held for investment of $656.3 million consisted of $378.7 million of residential mortgage loans, $150.9 million of commercial and industrial loans, $44.0 million of commercial mortgage loans, $40.2 million of construction loans, and $42.5 million of consumer loans. Outstanding unfunded commitments on TDR loans amounted to $5.7 million as of September 30, 2016.

The Corporation’s loss mitigation programs for residential mortgage and consumer loans can provide for one or a combination of the following: movement of interest past due to the end of the loan, extension of the loan term, deferral of principal payments and reduction of interest rates either permanently or for a period of up to four years (increasing back in step-up rates). Additionally, in certain cases, the restructuring may provide for the forgiveness of contractually due principal or interest. Uncollected interest is added to the end of the loan term at the time of the restructuring and not recognized as income until collected or when the loan is paid off. These programs are available only to those borrowers who have defaulted, or are likely to default, permanently on their loan and would lose their homes in a foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, properties are foreclosed.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers. Trial modifications generally represent a six-month period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification. TDR loans that are participating in or that have been offered a binding trial modification are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. As of September 30, 2016, we classified an additional $5.6 million of residential mortgage loans as TDRs that were participating in or had been offered a trial modification.

For the commercial real estate, commercial and industrial, and construction loan portfolios, at the time of a restructuring, the Corporation determines, on a loan-by-loan basis, whether a concession was granted for economic or legal reasons related to the borrower’s financial difficulty. Concessions granted for commercial loans could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that would be considered a concession. The Corporation mitigates loan defaults for its commercial loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of commercial loans. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the Corporation’s Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO.

In addition, the Corporation extends, renews, and restructures loans with satisfactory credit profiles. Many commercial loan facilities are structured as lines of credit, which are mainly one year in term and, therefore, are required to be renewed annually. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, timing of completion of projects, and other factors. If the borrower is not deemed to have financial difficulties, extensions, renewals, and restructurings are done in the normal course of business and are not considered to be concessions, and the loans continue to be recorded as performing.

Selected information on TDRs that includes the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all TDRs:

		September 30, 2016
(In thousands)		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Other (1)		Total
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans		$	29,934	$	8,172	$	283,550	$	-	$	57,065	$	378,721
Commercial Mortgage Loans			6,092		1,219		26,053		-		10,608		43,972
Commercial and Industrial Loans			2,153		69,244		25,263		2,637		51,593		150,890
Construction Loans:
Land			-		285		2,193		-		402		2,880
Construction-commercial			-		-		-		36,953		-		36,953
Construction-residential			-		-		-		-		357		357
Consumer Loans - Auto			-		1,921		14,680		-		8,422		25,023
Finance Leases			-		424		2,152		-		-		2,576
Consumer Loans - Other			229		2,185		10,120		300		2,112		14,946
Total Troubled Debt Restructurings		$	38,408	$	83,450	$	364,011	$	39,890	$	130,559	$	656,318

(1)	Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation or a combination of the concessions listed in the table.


		December 31, 2015
(In thousands)		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Other (1)		Total
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans		$	29,066	$	6,027	$	297,310	$	-	$	50,269	$	382,672
Commercial Mortgage Loans			4,379		1,244		26,109		-		12,766		44,498
Commercial and Industrial Loans			2,163		75,104		27,214		3,027		42,746		150,254
Construction Loans:
Land			-		229		2,165		-		372		2,766
Construction-commercial			-		-		-		39,466		-		39,466
Construction-residential			-		-		3,046		-		436		3,482
Consumer Loans - Auto			-		2,330		12,388		-		6,864		21,582
Finance Leases			-		621		1,456		-		-		2,077
Consumer Loans - Other			89		1,604		11,026		327		1,748		14,794
Total Troubled Debt Restructurings		$	35,697	$	87,159	$	380,714	$	42,820	$	115,201	$	661,591

(1)	Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation or a combination of the concessions listed in the table.

	The following table presents the Corporation's TDR loans activity:

		Quarter Ended				Nine-Month Period Ended
(In thousands)		September 30,				September 30,
		2016		2015		2016		2015
Beginning balance of TDRs		$	670,991	$	634,761	$	661,591	$	694,453
New TDRs			15,596		30,044		66,075		95,840
Increases to existing TDRs - additional
disbursements			517		309		1,573		644
Charge-offs post modification (1)			(5,445)		(5,327)		(15,899)		(58,707)
Sales, net of charge-offs			-		-		-		(44,048)
Foreclosures			(5,567)		(6,139)		(12,967)		(16,391)
Removed from the TDR classification			-		-		(3,031)		-
Reclassification from loans held for sale (2)			-		40,005		-		40,005
Paid-off and partial payments			(19,774)		(11,690)		(41,024)		(29,833)
Ending balance of TDRs		$	656,318	$	681,963	$	656,318	$	681,963

(1)	For the nine-month period ended September 30, 2015, includes $45.3 million of charge offs related to TDRs included in the bulk sale of assets completed in the second quarter of 2015.
(2)	During the third quarter of 2015, upon the signing of a new agreement with the borrower, the Corporation changed its intent to sell a $40.0 million construction loan in the Virgin Islands. Accordingly, the loan was transferred back from held for sale to held for investment and continues to be classified as a TDR and a nonperforming loan.

TDR loans are classified as either accrual or nonaccrual loans. Loans in accrual status may remain in accrual status when their contractual terms have been modified in a TDR if the loan had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on non-accrual and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a non-accrual loan. Loan modifications increase the Corporation’s interest income by returning a non-performing loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs. The Corporation continues to consider a modified loan as an impaired loan for purposes of estimating the allowance for loan and lease losses. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the Corporation is willing to accept for a new loan with comparable risk may not be reported as a TDR, or an impaired loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. During the first nine months of 2016, the Corporation removed a $3.0 million loan from the TDR classification as the borrower is no longer experiencing financial difficulties, and the loan was refinanced at market terms and does not contain any concession to the borrower.

The following table provides a breakdown between accrual and nonaccrual status of TDR loans:

(In thousands)		As of September 30, 2016

		Accrual		Nonaccrual (1)		Total TDRs

Non-FHA/VA Residential Mortgage loans		$	296,840	$	81,881	$	378,721
Commercial Mortgage Loans			28,699		15,273		43,972
Commercial and Industrial Loans			58,004		92,886		150,890
Construction Loans:
Land			1,205		1,675		2,880
Construction-commercial			-		36,953		36,953
Construction-residential			-		357		357
Consumer Loans - Auto			16,561		8,462		25,023
Finance Leases			2,437		139		2,576
Consumer Loans - Other			12,173		2,773		14,946
Total Troubled Debt Restructurings		$	415,919	$	240,399	$	656,318

(1)	Included in non-accrual loans are $121.3 million in loans that are performing under the terms of the restructuring agreement but are reported in non-accrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.


(In thousands)		As of December 31, 2015

		Accrual		Nonaccrual (1)		Total TDRs

Non- FHA/VA Residential Mortgage loans		$	303,885	$	78,787	$	382,672
Commercial Mortgage Loans			29,121		15,377		44,498
Commercial and Industrial Loans			48,392		101,862		150,254
Construction Loans:
Land			924		1,842		2,766
Construction-commercial			-		39,466		39,466
Construction-residential			3,046		436		3,482
Consumer Loans - Auto			14,823		6,759		21,582
Finance Leases			1,980		97		2,077
Consumer Loans - Other			12,737		2,057		14,794
Total Troubled Debt Restructurings		$	414,908	$	246,683	$	661,591

(1)	Included in non-accrual loans are $118.2 million in loans that are performing under the terms of the restructuring agreement but are reported in non-accrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and there is no doubt about full collectability.

TDR loans exclude restructured residential mortgage loans that are guaranteed by the U.S. federal government (i.e., FHA/VA loans) totaling $67.9 million as of September 30, 2016 (December 31, 2015 - $77.6 million). The Corporation excludes FHA/VA guaranteed loans from TDR loans statistics given that, in the event that the borrower defaults on the loan, the principal and interest (at the specified debenture rate) are guaranteed by the U.S. government; therefore, the risk of loss on these types of loans is very low. The Corporation does not consider loans with U.S. federal government guarantees to be impaired loans for the purpose of calculating the allowance for loan and lease losses.

Loan modifications that are considered TDRs completed during the quarter and nine-month period ended September 30, 2016 and 2015 were as follows:

(Dollars in thousands)	Quarter Ended September 30, 2016
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans	55	$	8,631	$	8,449
Commercial Mortgage Loans	5		679		712
Commercial and Industrial Loans	2		1,432		1,432
Construction Loans:
Land	4		158		155
Consumer Loans - Auto	189		3,262		3,262
Finance Leases	11		295		295
Consumer Loans - Other	257		1,269		1,291
Total Troubled Debt Restructurings	523	$	15,726	$	15,596

(Dollars in thousands)	Nine-Month Period Ended September 30, 2016
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans	167	$	25,040	$	24,040
Commercial Mortgage Loans	8		3,351		3,380
Commercial and Industrial Loans	21		21,693		21,693
Construction Loans:
Land	4		158		155
Consumer Loans - Auto	612		10,961		10,961
Finance Leases	59		1,477		1,477
Consumer Loans - Other	862		4,312		4,369
Total Troubled Debt Restructurings	1,733	$	66,992	$	66,075

(Dollars in thousands)	Quarter Ended September 30, 2015
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans	98	$	19,901	$	19,481
Commercial Mortgage Loans	4		7,380		5,719
Construction Loans:
Land	1		109		109
Consumer Loans - Auto	203		3,352		3,297
Finance Leases	19		521		418
Consumer Loans - Other	197		1,026		1,020
Total Troubled Debt Restructurings	522	$	32,289	$	30,044


(Dollars in thousands)	Nine-Month Period Ended September 30, 2015
	Number of contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Non-FHA/VA Residential Mortgage loans	350	$	60,043	$	57,882
Commercial Mortgage Loans	13		20,332		18,781
Commercial and Industrial Loans	3		2,997		2,579
Construction Loans:
Land	7		603		600
Consumer Loans - Auto	547		8,739		8,564
Finance Leases	43		1,215		1,056
Consumer Loans - Other	929		6,432		6,378
Total Troubled Debt Restructurings	1,892	$	100,361	$	95,840

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-performing loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The Corporation considers a loan to have defaulted if the borrower has failed to make payments of either principal, interest, or both for a period of 90 days or more.

Loan modifications considered TDR loans that defaulted during the quarters and nine-month periods ended September 30, 2016 and September 30, 2015 and had become TDR during the 12-months preceding the default date were as follows:

	Quarter Ended September 30,
(Dollars in thousands)	2016			2015
	Number of contracts	Recorded Investment		Number of contracts	Recorded Investment

Non-FHA/VA Residential Mortgage loans	14	$	1,707	23	$	3,744
Consumer Loans - Auto	5		68	1		10
Consumer Loans - Other	22		93	51		219
Finance Leases	1		30	3		145
Total	42	$	1,898	78	$	4,118

	Nine-Month Period Ended September 30,
(Dollars in thousands)	2016			2015
	Number of contracts	Recorded Investment		Number of contracts	Recorded Investment

Non-FHA/VA Residential Mortgage loans	35	$	4,863	50	$	7,646
Commercial and Industrial Loans	-		-	4		5,745
Consumer Loans - Auto	45		702	8		50
Consumer Loans - Other	89		339	141		589
Finance Leases	2		43	6		185
Total	171	$	5,947	209	$	14,215

For certain TDR loans, the Corporation splits the loans into two new notes, A and B notes. The A note is restructured to comply with the Corporation’s lending standards at current market rates, and is tailored to suit the customer’s ability to make timely interest and principal payments. The B note includes the granting of the concession to the borrower and varies by situation. The B note is charged off but the obligation is not forgiven to the borrower, and any payments collected are accounted for as recoveries. At the time of the restructuring, the A note is identified and classified as a TDR loan. If the loan performs for at least six months according to the modified terms, the A note may be returned to accrual status. The borrower’s payment performance prior to the restructuring is included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring. In the periods following the calendar year in which a loan was restructured, the A note may no longer be reported as a TDR loan if it is in accrual status, is in compliance with its modified terms, and yields a market rate (as determined and documented at the time of the restructuring).

The recorded investment in loans held for investment restructured using the A/B note restructure workout strategy was approximately $38.0 million as of September 30, 2016. The following table provides additional information about the volume of this type of loan restructuring and the effect on the allowance for loan and lease losses in the first nine months of 2016 and 2015:

(In thousands)	September 30, 2016			September 30, 2015
Principal balance deemed collectible at end of period	$	38,004	$	40,632
Amount charged off	$	-	$	-
Charges to the provision for loan losses	$	2,660	$	185
Allowance for loan losses at end of period	$	3,521	$	916

Of the loans comprising the $38.0 million that have been deemed collectible, approximately $37.9 million were placed in accrual status as the borrowers have exhibited a period of sustained performance. These loans continue to be individually evaluated for impairment purposes.