LOANS PORTFOLIO

12 Months Ended

Dec. 31, 2018

Loans, Notes, Trade and Other Receivables, Excluding Allowance for Credit Losses [Text Block]

NOTE 8 – LOANS HELD FOR INVESTMENT

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

		As of December 31,		As ofDecember 31,
		2018		2017
(In thousands)
Residential mortgage loans, mainly secured by first mortgages		$	3,163,208	$	3,290,957
Commercial loans:
Construction loans (1)			79,429		111,397
Commercial mortgage loans (1)			1,522,662		1,614,972
Commercial and Industrial loans (1)(2)			2,148,111		2,083,253
Total commercial loans			3,750,202		3,809,622
Finance leases			333,536		257,462
Consumer loans			1,611,177		1,492,435
Loans held for investment			8,858,123		8,850,476
Allowance for loan and lease losses			(196,362)		(231,843)
Loans held for investment, net		$	8,661,761	$	8,618,633

(1)	During the first and third quarters of 2018, the Corporation transferred $74.4 million (net of fair value write-downs of $22.2 million recorded at the time of transfers) in nonaccrual loans to held for sale. Loans transferred to held for sale consisted of nonaccrual commercial mortgage loans totaling $39.6 million (net of fair value write-downs of $13.8 million), nonaccrual construction loans totaling $33.0 million (net of fair value write-downs of $6.7 million) and nonaccrual commercial and industrial loans totaling $1.8 million (net of fair value write-downs of $1.7 million). Approximately $27.2 million of the commercial mortgage loans transferred to loans held for sale and $30.0 million of the construction loans transferred to loans held for sale were eventually sold during the second, third, and fourth quarters of 2018.
(2)	As of December 31, 2018 and 2017, $796.8 million and $833.5 million, respectively, of commercial loans were secured by real estate but are not dependent upon the real estate for repayment.

As of December 31, 2018, and 2017, the Corporation had net deferred origination costs on its loan portfolio amounting to $5.6 million and $4.0 million, respectively. The total loan portfolio is net of unearned income of $51.3 million and $38.6 million as of December 31, 2018 and 2017, respectively.

As of December 31, 2018, the Corporation was servicing residential mortgage loans owned by others aggregating $2.9 billion (2017 — $2.8 billion), and commercial loan participations owned by others amounting to $273.4 million as of December 31, 2018 (2017 — $361.3 million).

Various loans, mainly secured by first mortgages, were assigned as collateral for CDs, individual retirement accounts, and advances from the FHLB. Total loans pledged as collateral amounted to $1.9 billion as of December 31, 2018 and 2017.

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

		As of		As of
		December 31,		December 31,
		2018		2017
(In thousands)
Nonaccrual loans:
Residential mortgage		$	147,287	$	178,291
Commercial mortgage (1)			109,536		156,493
Commercial and Industrial (1)			30,382		85,839
Construction:
Land (1)			6,260		15,026
Construction-commercial (1)			-		35,100
Construction-residential			2,102		1,987
Consumer:
Auto loans			11,212		10,211
Finance leases			1,329		1,237
Other consumer loans			7,865		5,370
Total nonaccrual loans held for investment (2)(3)(4)		$	315,973	$	489,554

________________
(1)	During the first and third quarters 2018, the Corporation transferred $74.4 million (net of fair value write-downs of $22.2 million recorded at the time of transfers) in nonaccrual loans to held for sale. Loans transferred to held for sale consisted of nonaccrual commercial mortgage loans totaling $39.6 million (net of fair value write-downs of $13.8 million), nonaccrual construction loans totaling $33.0 million (net of fair value write-downs of $6.7 million) and nonaccrual commercial and industrial loans totaling $1.8 million (net of fair value write-downs of $1.7 million). Approximately $27.2 million of the commercial mortgage loans transferred to loans held for sale and $30.0 million of the construction loans transferred to loans held for sale were eventually sold during the second, third and fourth quarters of 2018.
(2)	Excludes $16.1 million and $8.3 million of nonaccrual loans held for sale as of December 31, 2018 and December 31, 2017, respectively.
(3)	Amount excludes PCI loans with a carrying value of approximately $146.6 million and $158.2 million as of December 31, 2018 and 2017, 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 nonaccrual 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.
(4)	Nonaccrual loans exclude $478.9 million and $374.7 million of TDR loans that are in compliance with the modified terms and in accrual status as of December 31, 2018 and 2017, respectively.

If these nonaccrual loans were accruing interest, the additional interest income realized in 2018 would have been $21.4 million (2017— $35.2 million; 2016 — $43.2 million).

During the first quarter of 2018, the Corporation transferred to held for sale several nonaccrual commercial and construction loans. The aggregate recorded investment in these loans of $66.9 million was written down to $57.2 million, which resulted in charge-offs of $9.7 million, of which $4.1 million was taken against previously-established reserves for loan losses, resulting in a charge to the provision for loan and lease losses of $5.6 million in the first quarter of 2018. Subsequent to the end of the first quarter of 2018, the Corporation sold all of these loans transferred to held for sale in separate transactions and also completed the sale of a $7.7 million nonaccrual construction loan held for sale. These sales resulted in the recognition of an additional aggregate net loss of $2.7 million recorded as part of “other non-interest income” in the consolidated statement of income.

In addition, during the third quarter of 2018, the Corporation transferred to held for sale several nonaccrual commercial and construction loans. The aggregate recorded investment in these loans of $29.7 million was written down to $17.2 million, which resulted in charge-offs of $12.5 million, of which $2.4 million was taken against previously established reserves for loan losses, resulting in a charge to the provision for loan and lease losses of $10.1 million in the third quarter of 2018.

As of December 31, 2018, the recorded investment of residential mortgage loans collateralized by residential real estate property that are in the process of foreclosure amounted to $177.2 million, including $48.5 million of loans insured by the FHA or guaranteed by the VA, and $21.3 million of PCI loans. 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 (i.e., Puerto Rico, Florida and the USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (i.e., the BVI) is processed without court intervention. Foreclosure timelines vary according to local jurisdiction law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays and title issues.

The Corporation’s aging of the loans held for investment portfolio is as follows:

	As of December 31, 2018	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1)(2)(3)		Total Past Due		Purchased Credit-Impaired Loans		Current		Total loans held for investment		90 days past due and still accruing (1)(2)(3)
		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1)(2)(3)		Total Past Due		Purchased Credit-Impaired Loans		Current		Total loans held for investment		90 days past due and still accruing (1)(2)(3)
(In thousands)
Residential mortgage:
FHA/VA government-guaranteed
loans (2) (3) (4)		$	-	$	4,183	$	104,751	$	108,934	$	-	$	38,271	$	147,205	$	104,751
Other residential mortgage loans (2) (4)			-		62,077		161,851		223,928		143,176		2,648,899		3,016,003		14,564
Commercial:
Commercial and Industrial loans			2,550		66		35,385		38,001		-		2,110,110		2,148,111		5,003
Commercial mortgage loans (4)			-		1,038		110,482		111,520		3,464		1,407,678		1,522,662		946
Construction:
Land (4)			-		207		6,327		6,534		-		13,779		20,313		67
Construction-commercial (4)			-		-		-		-		-		47,965		47,965		-
Construction-residential (4)			-		-		2,102		2,102		-		9,049		11,151		-
Consumer:
Auto loans			31,070		7,103		11,212		49,385		-		897,091		946,476		-
Finance leases			5,502		1,362		1,329		8,193		-		325,343		333,536		-
Other consumer loans			9,898		4,542		11,617		26,057		-		638,644		664,701		3,752
Total loans held for investment		$	49,020	$	80,578	$	445,056	$	574,654	$	146,640	$	8,136,829	$	8,858,123	$	129,083

(1)	Includes nonaccrual loans and accruing loans that were 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, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. These balances include $51.4 million of residential mortgage loans insured by the FHA and guaranteed by the VA that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2018, taking into consideration the FHA interest curtailment process.
(3)	As of December 31, 2018, includes $43.6 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 on two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, and land loans past due 30-59 days as of December 31, 2018 amounted to $5.6 million, $101.4 million, $5.1 million, and $0.2 million, respectively.

	As of December 31, 2017	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1)(2)(3)		Total Past Due			Purchased Credit-Impaired Loans	Current		Total loans held for investment		90 days past due and still accruing (1)(2)(3)
		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1)(2)(3)		Total Past Due			Purchased Credit-Impaired Loans	Current		Total loans held for investment		90 days past due and still accruing (1)(2)(3)
(In thousands)
Residential mortgage:
FHA/VA government-guaranteed
loans (2) (3) (4)		$	-	$	6,792	$	102,815	$	109,607	$	-	$	29,332	$	138,939	$	102,815
Other residential mortgage loans (2) (4)			-		92,502		193,750		286,252		153,991		2,711,775		3,152,018		15,459
Commercial:
Commercial and Industrial loans			8,971		576		88,156		97,703		-		1,985,550		2,083,253		2,317
Commercial mortgage loans (4)			-		7,525		163,180		170,705		4,183		1,440,084		1,614,972		6,687
Construction:
Land (4)			-		124		15,177		15,301		-		11,630		26,931		151
Construction-commercial (4)			-		-		35,100		35,100		-		41,456		76,556		-
Construction-residential (4)			-		95		1,987		2,082		-		5,828		7,910		-
Consumer:
Auto loans			57,560		23,783		10,211		91,554		-		752,777		844,331		-
Finance leases			10,549		3,484		1,237		15,270		-		242,192		257,462		-
Other consumer loans			10,776		5,052		9,361		25,189		-		622,915		648,104		3,991
Total loans held for investment		$	87,856	$	139,933	$	620,974	$	848,763	$	158,174	$	7,843,539	$	8,850,476	$	131,420

(1)	Includes nonaccrual loans and accruing loans that were 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, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. These balances include $29.9 million of residential mortgage loans insured by the FHA and guaranteed by the VA that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2017, taking into consideration the FHA interest curtailment process.
(3)	As of December 31, 2017, includes $62.1 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 on two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, and land loans past due 30-59 days as of December 31, 2017 amounted to $6.0 million, $224.0 million, $9.0 million, and $2.5 million, respectively.

In working with borrowers in the Virgin Islands and Puerto Rico affected by Hurricanes Irma and Maria, which made landfall on September 6, 2017 and September 20, 2017, respectively, the Corporation provided three-month deferred repayment arrangements to consumer borrowers (i.e., personal loans, auto loans, finance leases, and credit cards) who were current in their payments or no more than 2 payments in arrears as of the date of the respective hurricane. For residential mortgage loans, the Corporation entered during the third and fourth quarters of 2017 into deferred payment arrangements on 9,588 residential mortgages totaling $1.3 billion as of December 31, 2017 that provided for a three-month payment deferral for those loans current or no more than 2 payments in arrears as of the date of the events. For both consumer and residential mortgage loans that were subject to the deferral programs, each borrower was required to resume their regularly scheduled loan payment at the end of the deferral period (January 2018) and the deferred amounts were move to the end of the loan. The payment deferral programs were applied prospectively from the date of the events and did not change the delinquency status of the loans as of such dates. Also in 2017, the Corporation, on a case by case basis, entered into three-month deferral arrangements on 351 commercial and construction loans that were current in payments at the date of the event totaling $1.2 billion as of December 31, 2017. Residential mortgage loans in early delinquency (i.e., 30-89 days past due as defined in regulatory report instructions) decreased during year 2018 by $42.7 million to $73.2 million as of December 31, 2018, and consumer loans in early delinquency decreased during year 2018 by $51.7 million to $59.5 million as of December 31, 2018. Commercial and construction loans in early delinquency decreased during year 2018 by $13.8 million to $3.9 million as of December 31, 2018.

	The Corporation’s commercial and construction loans credit quality indicators as of December 31, 2018 and 2017 are summarized below:

		Commercial Credit Exposure-Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
	December 31, 2018	Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
	(In thousands)
	Commercial mortgage	$	276,935	$	1,701	$	-	$	278,636	$	1,522,662
	Construction:
	Land		7,407		-		-		7,407		20,313
	Construction-commercial		-		-		-		-		47,965
	Construction-residential		2,102		-		-		2,102		11,151
	Commercial and Industrial		45,274		6,114		396		51,784		2,148,111

		Commercial Credit Exposure-Credit Risk Profile Based on Creditworthiness Category:
		Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
	December 31, 2017	Substandard		Doubtful		Loss		Total Adversely Classified (1)		Total Portfolio
	(In thousands)
	Commercial mortgage	$	257,503	$	4,166	$	-	$	261,669	$	1,614,972
	Construction:
	Land		15,971		490		-		16,461		26,931
	Construction-commercial		35,100		-		-		35,100		76,556
	Construction-residential		1,987		-		-		1,987		7,910
	Commercial and Industrial		154,416		3,854		676		158,946		2,083,253

(1)	Excludes nonaccrual loans held for sale of $16.1 million ($11.4 million commercial mortgage, $3.0 million construction-commercial, and $1.7 million commercial and industrial) and $8.3 million (construction-land) as of December 31, 2018 and December 31, 2017, respectively.

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 of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently known facts, conditions and values. 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 asset even though partial recovery may occur in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.

In addition, the Corporation had $257.8 million in commercial and construction loans rated as Special Mention (2017 - $354.7 million). A Special Mention assets has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Corporation sufficient risk to warrant adverse classification. The Corporation periodically reviews its loans classification to evaluate if they are properly classified, and to determine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades.

The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and administratively to the Chief Risk Officer, which performs annual comprehensive credit process reviews of the Bank’s commercial portfolios. This group evaluates the credit risk profile of portfolios, including the assessment of the risk rating representative of the current credit quality of the loans, and the evaluation of collateral documentation. The monitoring performed by this group contributes to the assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the evaluation of the effectiveness of the credit management process and the identification of any deficiency that may arise in the credit-granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee of the Corporation’s Board of Directors.

The Corporation’s consumer and residential loans credit quality indicators as of December 31, 2018 and 2017 are summarized below:

	December 31, 2018	Consumer Credit Exposure-Credit Risk Profile Based on Payment Activity
		Residential Real-Estate				Consumer
		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
	(In thousands)
	Performing	$	147,205	$	2,725,540	$	935,264	$	332,207	$	656,836
	Purchased Credit-Impaired (2)		-		143,176		-		-		-
	Nonaccrual		-		147,287		11,212		1,329		7,865
	Total	$	147,205	$	3,016,003	$	946,476	$	333,536	$	664,701

(1)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as 90 days past-due loans and still accruing as opposed to nonaccrual loans since the principal repayment is insured. This balance includes $51.4 million of residential mortgage loans insured by the FHA that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2018, taking into consideration the FHA interest curtailment process.
(2)	PCI loans are excluded from nonaccrual 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 analyses.


	December 31, 2017	Consumer Credit Exposure-Credit Risk Profile Based on Payment Activity
			Residential Real-Estate			Consumer
		FHA/VA/ Guaranteed(1)		Other residential loans		Auto		Finance Leases		Other Consumer
	(In thousands)
	Performing	$	138,939	$	2,819,736	$	834,120	$	256,225	$	642,734
	Purchased Credit-Impaired (2)		-		153,991		-		-		-
	Nonaccrual		-		178,291		10,211		1,237		5,370
	Total	$	138,939	$	3,152,018	$	844,331	$	257,462	$	648,104

(1)	It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as 90 days past-due loans and still accruing as opposed to nonaccrual loans since the principal repayment is insured. This balance includes $29.9 million of residential mortgage loans insured by the FHA that were over 15 months delinquent, and were no longer accruing interest as of December 31, 2017, taking into consideration the FHA interest curtailment process.
(2)	PCI loans are excluded from nonaccrual 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 analyses.

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

Impaired Loans

							Impaired Loans
		Impaired Loans - With a Related Specific Allowance					With No Related Specific Allowance				Impaired Loans Total


	Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance
(In thousands)
As of December 31, 2018

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		293,494		325,897		19,965		110,238		148,920		403,732		474,817		19,965
Commercial:
Commercial mortgage loans		184,068		201,116		17,684		43,358		49,253		227,426		250,369		17,684
Commercial and Industrial loans		61,162		76,027		9,693		30,030		48,085		91,192		124,112		9,693
Construction:
Land		2,444		2,923		552		2,431		2,927		4,875		5,850		552
Construction-commercial		-		-		-		-		-		-		-		-
Construction-residential		1,718		2,370		208		-		-		1,718		2,370		208
Consumer:
Auto loans		17,781		17,781		3,689		250		250		18,031		18,031		3,689
Finance leases		1,914		1,914		102		22		22		1,936		1,936		102
Other consumer loans		9,291		10,066		2,083		2,068		2,750		11,359		12,816		2,083
	$	571,872	$	638,094	$	53,976	$	188,397	$	252,207	$	760,269	$	890,301	$	53,976

(1) Excluding accrued interest receivable.


							Impaired Loans
		Impaired Loans - With a Related Specific Allowance					With No Related Specific Allowance				Impaired Loans Total


	Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Recorded Investment ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance
(In thousands)
As of December 31, 2017

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Other residential mortgage loans		316,616		349,284		22,086		116,818		154,048		433,434		503,332		22,086
Commercial:
Commercial mortgage loans		87,814		124,084		9,783		65,100		100,612		152,914		224,696		9,783
Commercial and Industrial loans		90,008		112,005		12,359		28,292		31,254		118,300		143,259		12,359
Construction:
Land		11,865		19,973		1,402		48		49		11,913		20,022		1,402
Construction-commercial		35,101		38,595		560		-		-		35,101		38,595		560
Construction-residential		252		355		55		-		-		252		355		55
Consumer:
Auto loans		22,338		22,338		3,665		267		267		22,605		22,605		3,665
Finance leases		2,184		2,184		104		-		-		2,184		2,184		104
Other consumer loans		11,084		11,830		1,396		2,521		3,688		13,605		15,518		1,396
	$	577,262	$	680,648	$	51,410	$	213,046	$	289,918	$	790,308	$	970,566	$	51,410

(1) Excluding accrued interest receivable.



	Average Recorded Investment ⁽¹⁾		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
Year Ended December 31, 2018

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		411,730		18,131		1,376		19,507
Commercial:
Commercial mortgage loans		233,372		4,434		2,135		6,569
Commercial and Industrial loans		99,050		2,530		9		2,539
Construction:
Land		5,025		93		26		119
Construction-commercial		-		-		-		-
Construction-residential		1,724		-		-		-
Consumer:
Auto loans		20,156		1,449		-		1,449
Finance leases		2,197		145		-		145
Other consumer loans		12,177		913		164		1,077
	$	785,431	$	27,695	$	3,710	$	31,405

(1) Excluding accrued interest receivable.

	Average Recorded Investment ⁽¹⁾		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
Year Ended December 31, 2017

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		438,847		17,316		2,478		19,794
Commercial:
Commercial mortgage loans		180,283		1,983		390		2,373
Commercial and Industrial loans		121,233		1,447		403		1,850
Construction:
Land		14,174		372		38		410
Construction-commercial		35,996		-		-		-
Construction-residential		252		-		-		-
Consumer:
Auto loans		24,618		1,781		-		1,781
Finance leases		2,428		168		-		168
Other consumer loans		14,324		1,176		144		1,320
	$	832,155	$	24,243	$	3,453	$	27,696

(1) Excluding accrued interest receivable.

	Average Recorded Investment ⁽¹⁾		Interest Income on Accrual Basis		Interest Income on Cash Basis		Total Interest Income
(In thousands)
Year Ended December 31, 2016

FHA/VA-Guaranteed loans	$	-	$	-	$	-	$	-
Other residential mortgage loans		451,276		18,492		2,234		20,726
Commercial:
Commercial mortgage loans		203,322		1,403		723		2,126
Commercial and Industrial loans		166,362		631		1,287		1,918
Construction:
Land		15,801		170		51		221
Construction-commercial		38,191		-		-		-
Construction-residential		1,348		-		-		-
Consumer:
Auto loans		27,177		1,820		-		1,820
Finance leases		2,846		203		-		203
Other consumer loans		18,018		1,376		154		1,530
	$	924,341	$	24,095	$	4,449	$	28,544

(1) Excluding accrued interest receivable.

	The following table show the activity for impaired loans for 2018, 2017 and 2016:



		2018		2017		2016
(In thousands)
Impaired Loans:
Balance at beginning of year		$	790,308	$	887,905	$	806,509
Loans determined impaired during the year			250,524		140,977		288,202
Charge-offs (1)			(57,152)		(82,113)		(67,210)
Loans sold, net of charge-offs			(4,121)		(53,245)		(8,675)
Increases to existing impaired loans			7,335		8,292		3,236
Foreclosures			(36,453)		(37,513)		(36,161)
Loans no longer considered impaired			(5,417)		(3,526)		(27,643)
Loans transferred to held for sale			(74,052)		-		-
Paid in full, partial payments and other			(110,703)		(70,469)		(70,353)
Balance at end of year		$	760,269	$	790,308	$	887,905

(1)	For the year ended December 31, 2018, includes charge-offs totaling $22.2 million associated with the $74.4 million in nonaccrual loans transferred to held for sale. For the year ended December 31, 2017, includes a charge-off of $10.7 million related to the sale of the PREPA credit line and, for the year ended December 31, 2016, includes $4.2 million of charge-offs related to impaired loans included in a sale of a $16.3 million pool of non-performing assets.

PCI Loans

The Corporation acquired PCI loans accounted for under ASC Topic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC Topic 310-30”), as part of a transaction that 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, that 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 Topic 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 Topic 310-30, the acquired PCI loans were aggregated into pools based on similar characteristics (i.e., delinquency status and 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 under ASC Topic 310-30, they are not considered nonaccrual 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 amounts of PCI loans were as follows:

		As of		As of
		December 31,		December 31,
		2018		2017
(In thousands)
Residential mortgage loans	$	143,176	$	153,991
Commercial mortgage loans		3,464		4,183
Total PCI loans	$	146,640	$	158,174
Allowance for loan losses		(11,354)		(11,251)
Total PCI loans, net of allowance for loan losses	$	135,286	$	146,923

The following tables present PCI loans by past due status as of December 31, 2018 and 2017:


As of December 31, 2018		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
(In thousands)
Residential mortgage loans		$	-	$	6,979	$	26,932	$	33,911	$	109,265	$	143,176
Commercial mortgage loans			-		-		2,512		2,512		952		3,464
Total ⁽¹⁾		$	-	$	6,979	$	29,444	$	36,423	$	110,217	$	146,640
_____________
(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, 2018 amounted to $11.6 million. No PCI commercial mortgage loan was 30-59 days past due as of December 31, 2018.


As of December 31, 2017		30-59 Days		60-89 Days		90 days or more		Total Past Due				Total PCI loans
		30-59 Days		60-89 Days		90 days or more		Total Past Due		Current		Total PCI loans
(In thousands)
Residential mortgage loans		$	-	$	16,600	$	26,471	$	43,071	$	110,920	$	153,991
Commercial mortgage loans			-		355		2,834		3,189		994		4,183
Total ⁽¹⁾		$	-	$	16,955	$	29,305	$	46,260	$	111,914	$	158,174
_____________
(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 PCI commercial mortgage loans past due 30-59 days as of December 31, 2017 amounted to $28.1 million and $0.2 million, respectively.

Initial Fair Value and Accretable Yield of PCI Loans

At acquisition of PCI loans, the Corporation estimated the cash flows the Corporation expected to collect on the 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 statements 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 the 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 non-accretable 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 and lease losses. As of December 31, 2018, the reserve related to PCI loans acquired from Doral Financial in 2014 and from Doral Bank in 2015 amounted to $11.4 million (2017- $11.3 million). Approximately $1.8 million of the allowance related to PCI loans as of each December 31, 2018 and 2017, consists of qualitative adjustments to expected cash flows made to account for the estimated effect Hurricane Maria could have on the PCI loan portfolios; considering the loans historical-deteriorated conditions and higher susceptibility to adverse macroeconomic effects.

Changes in the accretable yield of PCI loans for the years ended December 31, 2018, 2017 and 2016 were as follows:

	December 31, 2018		December 31, 2017		December 31, 2016
(In thousands)
Balance at beginning of year	$	103,682	$	116,462	$	118,385
Accretion recognized in earnings		(10,189)		(10,810)		(11,533)
Reclassification (to) from non-accretable		-		(1,970)		9,610
Balance at end of period	$	93,493	$	103,682	$	116,462

Changes in the carrying amount of PCI loans accounted for pursuant to ASC Topic 310-30 were as follows:

	Year ended		Year ended
	December 31, 2018		December 31, 2017
(In thousands)
Balance at beginning of year	$	158,174	$	165,818
Accretion		10,189		10,810
Collections		(16,749)		(15,400)
Foreclosures		(4,974)		(3,054)
Ending balance	$	146,640	$	158,174
Allowance for loan losses		(11,354)		(11,251)
Ending balance, net of allowance for loan losses	$	135,286	$	146,923

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


	Year ended
	December 31, 2018		December 31, 2017

Balance at beginning of year	$	11,251	$	6,857
Provision for loan losses		103		4,394
Balance at end of period	$	11,354	$	11,251

The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $181.1 million as of December 31, 2018 (compared to - $196.6 million as of December 31, 2017).

Purchases and Sales of Loans

During 2018, the Corporation purchased $46.1 million of residential mortgage loans as part of a strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. In general, 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 GSEs such as FNMA and FHLMC, which generally securitize the transferred loans into MBS for sale into the secondary market. During 2018, the Corporation sold $233.2 million of FHA/VA mortgage loans to GNMA, which packaged them into MBS. Also, during 2018, the Corporation sold approximately $104.9 million of performing residential mortgage loans to FNMA and FHLMC. 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). The total amount of loans sold in the secondary market included $9.8 million of seasoned residential mortgage loans sold to FNMA in the second quarter of 2018.

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. As of December 31, 2018 and 2017, rebooked GNMA delinquent loans included in the residential mortgage loan portfolio amounted to $43.6 million and $62.1 million, respectively.

During 2018, 2017, and 2016, the Corporation repurchased, pursuant to its repurchase option with GNMA, $49.1 million, $25.1 million, and $29.1 million, respectively, of loans previously sold to GNMA. While the borrowers for the Corporation’s serviced GNMA portfolio benefited from the loan payment moratorium as part of the hurricane relief efforts, the delinquency status of these loans continued to be reported to GNMA without considering the moratorium. 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, which is 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. Historically, losses for violations of representations and warranties, and on optional repurchases of GNMA delinquent loans, have been immaterial and no provision is made at the time of sale.

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 $0.1 million, $36 thousand, and $0.7 million during 2018, 2017, and 2016, 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.

In addition, during 2018 and 2017, the Corporation purchased $21.4 million and $52.6 million, respectively, of commercial and industrial loan participations.

Other loan sales include: (i) the sale in 2018 of a $5.6 million commercial and industrial adversely-classified loan in Puerto Rico (recording a charge-off of $1.3 million); (ii) the sale in 2018 of a $9.2 million commercial and industrial loan participation in the Florida region; (iii) the sale in 2018 of $34.9 million in nonaccrual commercial and construction loans in Puerto Rico and a $27.0 million nonaccrual construction loan in the Virgin Islands, as further discussed above; and (iv) the sale in 2016 of commercial mortgage loan participations amounting to $20.2 million.

Sale of the Puerto Rico Electric Power Authority (“PREPA”) Loan

During the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government. A specific reserve of approximately $10.2 million had been allocated to this loan. Gross proceeds of $53.2 million from the sale resulted in an incremental loss of $0.6 million recorded as a charge to the provision for loan and lease losses in 2017.

Sale of a $16.3 Million Pool of Non-Performing Assets

During the fourth quarter of 2016, the Corporation completed the sale of a pool of non-performing assets with a book value of $16.3 million (principal balance of $20.1 million), in a cash transaction. The proceeds from this sale were $11.3 million net of escrows and principal and interest collected on behalf of the purchaser subsequent to the effective date of the transaction. Approximately $2.8 million of reserves had been allocated to the nonaccrual loans included in this pool. This transaction resulted in total net charge-offs of $4.6 million and an incremental pre-tax loss of $1.8 million recorded as a charge to the provision for loan and lease losses in 2016.

Loan Portfolio Concentration

The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, 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 December 31, 2018, credit risk concentration was approximately 74% in Puerto Rico, 21% in the United States, and 5% in the USVI and BVI.

As of December 31, 2018, the Corporation had $61.6 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $55.9 million as of December 31, 2017. Approximately $47.2 million of the outstanding loans as of December 31, 2018 consisted of loans extended to municipalities in Puerto Rico, which in most cases are supported by assigned property tax revenues. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio 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 notes. Late in 2015, the GDB and the Municipal Revenue Collection Center (“CRIM”) signed and perfected 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 commercial depository financial institution in Puerto Rico. In addition to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of December 31, 2018 included a $14.5 million loan granted to an affiliate of PREPA.

In addition, as of December 31, 2018, the Corporation had $112.1 million in 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 under the mortgage loan insurance program. According to the most recently-released audited financial statements of the Puerto Rico Housing Finance Authority, as of June 30, 2016, the Puerto Rico Housing Finance Authority’s mortgage loans insurance program covered loans in an aggregate of approximately $576 million. The regulations adopted by the Puerto Rico Housing Finance Authority require the establishment of adequate reserves to guarantee the solvency of the mortgage loan insurance fund. As of June 30, 2016, 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 also has credit exposure to USVI government entities. As of December 31, 2018, the Corporation had $55.8 million in loans to USVI government instrumentalities and public corporations, compared to $70.4 million as of December 31, 2017. Of the amount outstanding as of December 31, 2018, public corporations of the USVI owed approximately $32.6 million and an independent instrumentality of the USVI government owed approximately $23.2 million. As of December 31, 2018, all loans were currently performing and up to date on principal and interest payments.

The Corporation cannot predict at this time the ultimate effect that the current fiscal situation of the Commonwealth of Puerto Rico, the uncertainty about the debt restructuring process, the various legislative and other measures adopted and to be adopted by the Puerto Rico government and the PROMESA oversight board in response to such fiscal situation, and Hurricane Maria will have on the Puerto Rico economy, the Corporation’s clients, and 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, among others, the extension of the maturity of the loan and modifications of the loan rate. As of December 31, 2018, the Corporation’s total TDR loans held for investment of $582.6 million consisted of $333.9 million of residential mortgage loans, $74.9 million of commercial and industrial loans, $137.9 million of commercial mortgage loans, $5.5 million of construction loans, and $30.3 million of consumer loans. Outstanding unfunded commitments on TDR loans amounted to $0.7 million as of December 31, 2018.

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 six 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 loans 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 December 31, 2018, the Corporation classified an additional $3.4 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 loans in these portfolios 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 are considered to be concessions. The Corporation mitigates loan defaults for these loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of loans in these portfolios. 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 generally have one-year terms 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, and 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 not considered concessions, and the loans continue to be recorded as performing.

	Selected information on TDR loans held for investment based on the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all of the Corporation's TDRs held for investment:

		As of December 31, 2018
		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
	(In thousands)
	Troubled Debt Restructurings:
	Non-FHA/VA residential mortgage loans	$	22,729	$	11,586	$	239,348	$	-	$	145	$	60,094	$	333,902
	Commercial Mortgage loans (2)		3,966		2,005		122,709		-		-		9,269		137,949
	Commercial and Industrial loans (3)		664		19,769		13,323		-		2,673		38,492		74,921
	Construction loans:
	Land		16		2,524		1,933		-		-		292		4,765
	Construction-commercial		-		-		-		-		-		-		-
	Construction-residential		-		545		-		-		-		217		762
	Consumer loans - Auto		-		1,517		10,085		-		-		6,429		18,031
	Finance leases		-		101		1,186		-		-		648		1,935
	Consumer loans - Other		1,396		1,236		5,651		275		-		1,824		10,382
	Total Troubled Debt Restructurings	$	28,771	$	39,283	$	394,235	$	275	$	2,818	$	117,265	$	582,647

(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.
(2)	Excludes commercial mortgage TDR loans held for sale amounting to $11.1 million as of December 31, 2018.
(3)	Excludes commercial and industrial TDR loans held for sale amounting to $0.9 millions of December 31, 2018.

		As of December 31, 2017
		Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
	(In thousands)
	Troubled Debt Restructurings:
	Non-FHA/VA residential mortgage loans	$	25,964	$	8,318	$	267,578	$	-	$	-	$	62,070	$	363,930
	Commercial Mortgage loans		6,563		2,094		31,870		-		-		10,285		50,812
	Commercial and Industrial loans		2,510		20,648		16,049		-		6,623		48,282		94,112
	Construction loans:
	Land		18		3,941		2,186		-		-		331		6,476
	Construction-commercial		-		-		-		35,100		-		-		35,100
	Construction-residential		-		-		-		-		-		217		217
	Consumer loans - Auto		-		1,347		14,233		-		-		7,025		22,605
	Finance leases		-		238		1,946		-		-		-		2,184
	Consumer loans - Other		892		2,097		6,891		217		-		1,686		11,783
	Total Troubled Debt Restructurings	$	35,947	$	38,683	$	340,753	$	35,317	$	6,623	$	129,896	$	587,219

(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.

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 loans had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on nonaccrual 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 nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a nonaccrual 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. 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. The Corporation did not remove any loans from the TDR classification during 2018, 2017 and 2016 other than a $9.9 million loan refinanced at market terms in 2018 and a $3.0 million loan refinanced at market terms in 2016, as the borrowers were no longer experiencing financial difficulties and the refinancings did not contain any concession to the borrowers. These refinancings were included as part of “paid-off, partial payments and other” in the above table.

	The following table provides a breakdown of the TDR loans held for investment by those in accrual and nonaccrual status:

		As of December 31, 2018

		Accrual		Nonaccrual (1)		Total TDRs
	(In thousands)
	Non-FHA/VA residential mortgage loans	$	271,766	$	62,136	$	333,902
	Commercial Mortgage loans (2)		116,830		21,119		137,949
	Commercial and Industrial loans (3)		66,603		8,318		74,921
	Construction loans:
	Land		1,071		3,694		4,765
	Construction-commercial		-		-		-
	Construction-residential		-		762		762
	Consumer loans - Auto		11,842		6,189		18,031
	Finance leases		1,791		144		1,935
	Consumer loans - Other		9,025		1,357		10,382
	Total Troubled Debt Restructurings	$	478,928	$	103,719	$	582,647

(1)	Included in nonaccrual loans are $17.7 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual 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.
(2)	Excludes commercial mortgage TDR loans held for sale amounting to $11.1 million as of December 31, 2018.
(3)	Excludes commercial and industrial TDR loans held for sale amounting to $0.9 million as of December 31, 2018.



		As of December 31, 2017

		Accrual		Nonaccrual (1)		Total TDRs
	(In thousands)
	Non-FHA/VA residential mortgage loans	$	280,729	$	83,201	$	363,930
	Commercial Mortgage loans		23,329		27,483		50,812
	Commercial and Industrial loans		41,536		52,576		94,112
	Construction loans:
	Land		1,291		5,185		6,476
	Construction-commercial		-		35,100		35,100
	Construction-residential		-		217		217
	Consumer loans - Auto		15,548		7,057		22,605
	Finance leases		1,968		216		2,184
	Consumer loans - Other		10,294		1,489		11,783
	Total Troubled Debt Restructurings	$	374,695	$	212,524	$	587,219

(1)	Included in nonaccrual loans are $88.6 million in loans that were performing under the terms of the restructuring agreement but are reported in nonaccrual 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.

TDR loans exclude restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans) totaling $60.5 million as of December 31, 2018 (compared with $62.1 million as of December 31, 2017). The Corporation excludes FHA/VA guaranteed loans from TDR loan 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 TDR loans completed during 2018, 2017 and 2016 were as follows:

	Year Ended December 31, 2018
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	104	$	14,827	$	14,159
Commercial Mortgage loans	11		138,994		138,785
Commercial and Industrial loans	10		9,141		8,786
Construction loans:
Land	1		97		97
Construction-residential	1		587		558
Consumer loans - Auto	285		4,500		4,489
Finance leases	48		1,001		987
Consumer loans - Other	768		3,935		3,996
Total Troubled Debt Restructurings	1,228	$	173,082	$	171,857

	Year ended December 31, 2017
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	132	$	19,484	$	19,263
Commercial Mortgage loans	13		25,722		25,018
Commercial and Industrial loans	21		39,428		39,338
Construction loans:
Land	4		122		125
Consumer loans - Auto	426		6,451		6,451
Finance leases	22		548		548
Consumer loans - Other	657		3,041		3,094
Total Troubled Debt Restructurings	1,275	$	94,796	$	93,837

	Year ended December 31, 2016
	Number of contracts	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
(In thousands)
Troubled Debt Restructurings:
Non-FHA/VA residential mortgage loans	209	$	30,940	$	29,668
Commercial Mortgage loans	11		5,710		5,739
Commercial and Industrial loans	25		22,182		22,184
Construction loans:
Land	9		6,759		6,756
Consumer loans - Auto	744		13,141		13,141
Finance leases	74		1,878		1,878
Consumer loans - Other	1,156		5,496		5,576
Total Troubled Debt Restructurings	2,228	$	86,106	$	84,942

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a nonaccrual loan. Recidivism on a modified loan 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 years ended December 31, 2018, 2017, and 2016, and

	Year ended December 31,
	2018			2017			2016
	Number of contracts	Recorded Investment		Number of contracts	Recorded Investment		Number of contracts	Recorded Investment
(In thousands)
Non-FHA/VA residential mortgage loans	15	$	1,994	46	$	5,355	50	$	7,673
Commercial Mortgage loans	-		-	1		57	-		-
Consumer loans - Auto	62		1,003	14		207	51		764
Finance leases	1		22	1		39	2		43
Consumer loans - Other	56		206	99		387	119		454
Total	134	$	3,225	161	$	6,045	222	$	8,934

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 is 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 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 2018, 2017 and 2016:


(In thousands)	December 31, 2018		December 31, 2017		December 31, 2016
Beginning balance	$	35,577	$	36,971	$	39,329
New TDR loan splits		32,104		-		-
Paid-off and partial payments		(33,841)		(1,394)		(2,358)
Ending balance	$	33,840	$	35,577	$	36,971



(In thousands)	December 31, 2018		December 31, 2017		December 31, 2016
Allowance for loan losses at the beginning of the year	$	3,846	$	5,141	$	862
(Release) charges to the provision for loan losses		(10,789)		(1,295)		4,279
Net loan loss recoveries		7,416		-		-
Allowance for loan losses at the end of the year	$	473	$	3,846	$	5,141

Approximately $31.3 million of the loans restructured using the A/B note restructure workout strategy were in accrual status as of December 31, 2018. These loans continue to be individually evaluated for impairment purposes.