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ALLOWANCE FOR CREDIT LOSSES ON LOANS AND FINANCE LEASES
 9 Months Ended
Sep. 30, 2020
Allowance for Credit Loss [Abstract]  
ALLOWANCE FOR LOAN AND LEASE LOSSES NOTE 8 – ALLOWANCE FOR CREDIT LOSSES ON LOANS AND FINANCE LEASES

The following table presents the activity in the ACL on loans and finance leases by portfolio segment for the quarters and nine-month periods ended September 30, 2020 and September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage

 

Commercial & Industrial Loans

 

Consumer Loans

 

Total

 

 

 

 

 

 

Quarter Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

111,450

 

$

7,800

 

$

49,435

 

$

38,310

 

$

112,302

 

$

319,297

Allowance established for acquired PCD loans

 

12,739

 

 

-

 

 

9,723

 

 

1,830

 

 

4,452

 

 

28,744

Provision for credit losses

 

9,875

 

 

2,405

 

 

19,672

 

 

2,839

 

 

13,287

 

 

48,078

Charge-offs

 

(2,611)

 

 

(1)

 

 

(3,157)

 

 

(150)

 

 

(8,436)

 

 

(14,355)

Recoveries

 

328

 

 

37

 

 

53

 

 

80

 

 

2,456

 

 

2,954

Ending balance

$

131,781

 

$

10,241

 

$

75,726

 

$

42,909

 

$

124,061

 

$

384,718

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage

 

Commercial & Industrial Loans

 

Consumer Loans

 

Total

 

 

 

 

 

 

Nine-Month Period Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance, prior to adoption ASC 326

$

44,806

 

$

2,370

 

$

39,194

 

$

15,198

 

$

53,571

 

$

155,139

Impact of adopting ASC 326

 

49,837

 

 

797

 

 

(19,306)

 

 

14,731

 

 

35,106

 

 

81,165

Allowance established for acquired PCD loans

 

12,739

 

 

-

 

 

9,723

 

 

1,830

 

 

4,452

 

 

28,744

Provision for credit losses

 

32,255

 

 

7,068

 

 

49,278

 

 

11,225

 

 

58,705

 

 

158,531

Charge-offs

 

(8,968)

 

 

(75)

 

 

(3,303)

 

 

(323)

 

 

(33,930)

 

 

(46,599)

Recoveries

 

1,112

 

 

81

 

 

140

 

 

248

 

 

6,157

 

 

7,738

Ending balance

$

131,781

 

$

10,241

 

$

75,726

 

$

42,909

 

$

124,061

 

$

384,718

 

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage Loans

 

Commercial & Industrial Loans

 

Consumer Loans

 

Total

 

 

 

 

 

 

Quarter Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

48,284

 

$

3,026

 

$

46,373

 

$

21,644

 

$

52,684

 

$

172,011

Provision (release) for credit losses

 

2,162

 

 

(178)

 

 

(808)

 

 

(5,465)

 

 

11,687

 

 

7,398

Charge-offs

 

(5,288)

 

 

(68)

 

 

(813)

 

 

(387)

 

 

(12,708)

 

 

(19,264)

Recoveries

 

874

 

 

279

 

 

96

 

 

1,826

 

 

2,355

 

 

5,430

Ending balance

$

46,032

 

$

3,059

 

$

44,848

 

$

17,618

 

$

54,018

 

$

165,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage Loans

 

Commercial & Industrial Loans

 

Consumer Loans

 

Total

 

 

 

 

 

 

Nine-Month Period Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

50,794

 

$

3,592

 

$

55,581

 

$

32,546

 

$

53,849

 

$

196,362

Provision (release) for credit losses

 

9,387

 

 

(815)

 

 

3,854

 

 

(11,068)

 

 

30,394

 

 

31,752

Charge-offs

 

(16,229)

 

 

(347)

 

 

(14,901)

 

 

(7,056)

 

 

(37,004)

 

 

(75,537)

Recoveries

 

2,080

 

 

629

 

 

314

 

 

3,196

 

 

6,779

 

 

12,998

Ending balance

$

46,032

 

$

3,059

 

$

44,848

 

$

17,618

 

$

54,018

 

$

165,575

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Corporation estimates the ACL following the methodologies described in Note 1, – Basis of Presentation and Significant Accounting Policies, above for each portfolio segment. The ACL for loans and finance leases was $155.1 million as of December 31, 2019. Upon adoption of CECL on January 1, 2020, the Corporation recognized an increase in the ACL for loans and finance leases of approximately $81.2 million, as a cumulative effect adjustment from the adoption of ASC 326, with a corresponding decrease in retained earnings, net of applicable income taxes. As of September 30, 2020, the ACL for loans and finance leases was $384.7 million, up $229.6 million from December 31, 2019, driven by the $81.2 million increase as a result of adopting CECL, a $158.5 million provision for credit losses on loans, and the establishment of a $28.7 million ACL for PCD loans acquired in the BSPR acquisition. The Corporation recorded a $48.1 million provision for credit losses on loans and finance leases for the third quarter of 2020, compared to $36.4 million for the second quarter of 2020 and $7.4 million for the third quarter of 2019. The increase, as compared to the second quarter of 2020, reflects the effect of the initial ACL for non-PCD loans acquired in the BSPR acquisition in the amount of approximately $37.5 million, partially offset by lower reserves builds for the legacy loan portfolio compared to the more significant increase in reserves in the second quarter in connection with the effect of the COVID-19 pandemic. The Corporation recorded a provision for credit losses on loans of $158.5 million for the first nine months of 2020, compared to $31.8 million for the same period in 2019, an increase related to the aforementioned $37.5 million initial ACL for non-PCD loans and the reserves build related to the effect of the COVID-19 pandemic on current and forecasted economic conditions. The Corporation recorded net charge-offs of $11.4 million for the third quarter of 2020, compared to $9.9 million for the second quarter of 2020 and $13.8 million for the third quarter of 2019. The increase compared to the second quarter of 2020 was primarily related to a $3.1 million charge-off taken on a commercial mortgage loan in the Puerto Rico region, and the decrease compared to the third quarter of 2019 reflects both lower charge-offs taken on residential mortgage loans and the effect in 2019 of a $1.7 million loan loss recovery on a commercial and industrial loan in the Virgin Islands region. The increase in the ACL during the first nine months of 2020 was reflected across all loan portfolio categories and geographic regions due to the deterioration in the macroeconomic variables considered for the determination of the PDs and LGDs used in the different models. For those loans where the ACL was determined based on a discounted cash flow model, as indicated in Note 1, – Basis of Presentation and Significant Accounting Policies, above, the change in the ACL due to the passage of time is recorded as part of the provision for credit losses.

The tables below present the ACL related to loans and finance leases and the carrying value of loans by portfolio segment as of September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2020

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage

 

 

 

Consumer Loans

 

 

 

 

 

 

 

 

Commercial and Industrial Loans (1)

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

Total

 

Total loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost of loans

$

3,636,713

 

$

191,356

 

$

2,220,277

 

$

3,226,843

 

$

2,572,086

 

 

$

11,847,275

 

Allowance for credit losses

 

131,781

 

 

10,241

 

 

75,726

 

 

42,909

 

 

124,061

 

 

 

384,718

 

Allowance for credit losses to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortized cost

 

3.62

%

 

5.35

%

 

3.41

%

 

1.33

%

 

4.82

 

%

 

3.25

%

 

 

As of December 31, 2019

Residential Mortgage Loans

 

Construction Loans

 

Commercial Mortgage Loans

 

 

 

Consumer Loans

 

 

 

 

 

 

 

Commercial and Industrial Loans

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans held for investment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized cost of loans

$

2,933,773

 

$

111,317

 

$

1,444,586

 

$

2,230,876

 

$

2,281,653

 

$

9,002,205

 

Allowance for credit losses

 

44,806

 

 

2,370

 

 

39,194

 

 

15,198

 

 

53,571

 

 

155,139

 

Allowance for credit losses to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortized cost

 

1.53

%

 

2.13

%

 

2.71

%

 

0.68

%

 

2.35

%

 

1.72

%

____________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2020, includes $453.4 million of SBA PPP loans, which require no ACL as those loans are 100 % guaranteed by the SBA.

In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 - Basis of Presentation and Significant Accounting Policies, above. Upon adoption of CECL on January 1, 2020, the Corporation recognized an increase in the ACL for off-balance sheet exposures of approximately $3.9 million as a cumulative effect adjustment from the adoption of ASC 326, with a corresponding decrease in retained earnings, net of applicable income taxes. As of September 30, 2020, the ACL for off-balance sheet credit exposures was $6.3 million, including the $3.9 million effect of adopting CECL, and a $2.4 million charge to the provision in the first nine months of 2020. The provision recorded for the first nine months of 2020 includes a $1.3 million charge related to unfunded loan commitments assumed in the BSPR acquisition.

 

The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters and nine-month periods ended September 30, 2020 and 2019:

 

Quarter Ended

 

Nine-Month Period Ended

 

September 30,

 

September 30,

 

2020

 

2019

 

2020

 

2019

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$

7,084

 

$

-

 

$

-

 

$

412

Impact of adopting ASC 326

 

-

 

 

-

 

 

3,922

 

 

-

(Release) provision for credit losses

 

(803)

 

 

-

 

 

2,359

 

 

(412)

Ending balance

$

6,281

 

$

-

 

$

6,281

 

$

-