ALLOWANCE FOR CREDIT LOSSES ON LOANS AND FINANCE LEASES

12 Months Ended

Dec. 31, 2021

Allowance for Credit Loss [Abstract]

Allowance For Credit Losses [Text Block]

NOTE 9 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following table presents the activity in the ACL on loans and finance leases by portfolio segment for the

indicated periods:

Residential

Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial

Loans

Consumer

Loans

Total

Year Ended December 31, 2021

(In thousands)

ACL:

Beginning balance

$

120,311

$

5,380

$

109,342

$

37,944

$

112,910

$

385,887

Provision for credit losses - (benefit) expense

(16,957)

(1,408)

(55,358)

(8,549)

20,552

(61,720)

Charge-offs 

(33,294)

(87)

(1,494)

(1,887)

(43,948)

(80,710)

Recoveries

4,777

163

281

6,776

13,576

25,573

Ending balance

$

74,837

$

4,048

$

52,771

$

34,284

$

103,090

$

269,030

Residential

Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial

Loans

Consumer

Loans

Total

Year Ended December 31, 2020

(In thousands)

ACL:

Beginning balance, prior to adoption of CECL

$

44,806

$

2,370

$

39,194

$

15,198

$

53,571

$

155,139

Impact of adopting CECL

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

(1)

22,427

2,105

81,125

6,627

56,433

168,717

Charge-offs 

(11,017)

(76)

(3,330)

(3,634)

(46,483)

(64,540)

Recoveries

1,519

184

1,936

3,192

9,831

16,662

 Ending balance

$

120,311

$

5,380

$

109,342

$

37,944

$

112,910

$

385,887

Residential

Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial

Loans

Consumer

Loans

Total

Year Ended December 31, 2019

(In thousands)

ACL:

Beginning balance

$

50,794

$

3,592

$

55,581

$

32,546

$

53,849

$

196,362

Provision for credit losses - expense (benefit)

14,091

(1,496)

(1,697)

(13,696)

43,023

40,225

Charge-offs

(22,742)

(391)

(15,088)

(7,206)

(52,160)

(97,587)

Recoveries

2,663

665

398

3,554

8,859

16,139

 Ending balance

$

44,806

$

2,370

$

39,194

$

15,198

$

53,571

$

155,139

(1)

Includes a $

37.5

 million charge related to the establishment of the initial reserves for non-PCD loans acquired in conjunction with the BSPR acquisition consisting of: (i) a $

13.6

 million charge related to

non-PCD residential mortgage loans; (ii) a $

9.2

 million charge related to non-PCD commercial mortgage loans, (iii) a $

4.6

 million charge related to non-PCD commercial and industrial loans,

and (iv) a $

10.2

 million charge related to non-PCD consumer loans.

The Corporation estimates the ACL following the methodologies described in Note 1, – Basis of Presentation and Significant

Accounting Policies, above for each portfolio segment. As of each of the years ended December 31, 2021, and 2020, the Corporation

used the base-case economic scenario from Moody’s Analytics to estimate the ACL. As of December 31, 2021, the baseline scenario

continues to show a more favorable economic scenario and modest improvements in projected unemployment rates, and commercial

real estate price index when compared to forecast of December 31, 2020. The U.S. mainland average forecasted commercial price

index included in the 2021 forecast is an appreciation of 5.68% for the next two years, compared to an average contraction of 11.36%

in the forecast of December 31, 2020, for the years 2021 and 2022. The current average forecasted Puerto Rico, Florida and U.S.

mainland unemployment rate for the year 2022 is now 7.38%, 3.15% and 3.71%, respectively, compared to 8.12%, 6.14%, and 6.20%,

respectively, in the forecast of December 31, 2020, showing an improvement in all three regions. Expectations for 2023, for these

macroeconomic variables also present a favorable outlook over the forecasted period.

As of December 31, 2021, the ACL for loans and finance leases was $

269.0

 million, down $

116.9

 million from December 31,

2020, driven by positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated. The ACL for

commercial and construction loans decreased by $

61.6

 million during the year ended December 31, 2021, primarily reflecting

continued improvements in the outlook of macroeconomic variables, including improvements in the commercial real estate price

index and unemployment rate forecasts, the overall decline in the size of these portfolios, and the effect of a $

5.2

 million loan loss

recovery recorded in 2021 in connection with a paydown of a nonaccrual commercial and industrial loan. In addition, there was a

$

45.5

 million decrease in the ACL for residential mortgage loans and a $

9.8

 million decrease in the ACL for consumer loans. The

decrease in the ACL for consumer loans consisted of net charge-offs of $

30.4

 million, primarily taken on personal loans and credit

card loans, partially offset by charges to the provision of $

20.6

 million that, among other things, account for the increase in the size of

the portfolio of auto loans and finance leases and increases in cumulative historical charge-off levels for personal loans and credit card

loans. The decrease in the ACL for residential mortgage loans consisted of net charge-offs of $

28.5

 million, of which $

23.1

 million

are related to charge-offs recognized as part of the bulk sale of nonaccrual residential mortgage loans and related servicing advances

during the third quarter of 2021, and a benefit, or provision recapture, of $

17.0

 million that was primarily related to improvements in

the outlook of macroeconomic variables, such as regional unemployment rate and Home Price Index, and the overall portfolio

decrease. For those loans where the ACL was determined based on a discounted cash flow model, the change in the ACL due to the

passage of time is recorded as part of the provision for credit losses.

Total net charge-offs increased $

7.3

 million, or

15

%, in 2021. The variance consisted of a $

19.0

 million increase in residential

mortgage net charge-offs, driven by the $

23.1

 million net charge-offs recorded in connection with the bulk sale of nonaccrual

residential mortgage loans, partially offset by a $

6.3

 million decrease in consumer loans net charge-offs and the aforementioned $

5.2

million loan loss recovery recorded in connection with the paydown of a nonaccrual commercial and industrial loans.

As of December 31, 2020, the ACL for loans and finance leases was $

385.9

 million, up $

230.8

 million from December 31, 2019,

driven by the $

81.2

 million increase as a result of adopting CECL, a $

168.7

 million provision for credit losses on loans, and the

establishment of a $

28.7

 million ACL for PCD loans acquired in conjunction with the BSPR acquisition. The Corporation recorded

net charge-offs of $

47.9

 million for the year ended December 31, 2020, compared to $

81.4

 million for the year ended December 31,

2019.

The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of

December 31, 2021 and December 31, 2020:

As of December 31, 2021

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

$

2,978,895

$

138,999

$

2,167,469

$

2,887,251

$

2,888,044

$

11,060,658

 Allowance for credit losses

74,837

4,048

52,771

34,284

103,090

269,030

 Allowance for credit losses to 

 amortized cost

2.51

%

2.91

%

2.43

%

1.19

%

3.57

%

2.43

%

As of December 31, 2020

Residential

Mortgage Loans

Construction

Loans

Commercial

Mortgage Loans

Consumer

Loans

Commercial and

Industrial Loans

(1)

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

$

3,521,954

$

212,500

$

2,230,602

$

3,202,590

$

2,609,643

$

11,777,289

Allowance for credit losses

120,311

5,380

109,342

37,944

112,910

385,887

Allowance for credit losses to

amortized cost

3.42

%

2.53

%

4.90

%

1.18

%

4.33

%

3.28

%

____________

(1)

As of December 31, 2021 and December 31, 2020, includes $

145.0

 million and $

406.0

 million of SBA PPP loans, respectively, which require no ACL as these 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. As of December 31, 2021, the ACL for off-balance sheet credit exposures was $

1.5

 million, down $

3.6

million from $

5.1

 million as of December 31, 2020. The decrease was mainly in connection with improvements in the outlook of

macroeconomic variables.

The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the years

ended December 31, 2021, 2020 and 2019:

Year Ended

December 31,

2021

2020

2019

(In thousands)

Beginning Balance

$

5,105

$

-

$

412

Impact of adopting CECL

-

3,922

-

Provision for credit losses - (benefit)

(3,568)

1,183

(412)

 Ending balance

$

1,537

$

5,105

$

-