ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

3 Months Ended

Mar. 31, 2024

ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES [Abstract]

ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I 

Loans

Consumer Loans

Total

Quarter Ended March 31,2024

(In thousands)

ACL:

Beginning balance

$

57,397

$

5,605

$

32,631

$

33,190

$

133,020

$

261,843

Provision for credit losses - (benefit) expense

(464)

571

(10)

(3,360)

16,180

12,917

Charge-offs 

(516)

-

-

(459)

(28,364)

(29,339)

Recoveries

272

10

40

5,119

12,730

(1)

18,171

Ending balance

$

56,689

$

6,186

$

32,661

$

34,490

$

133,566

$

263,592

(1) Includes recoveries totaling $

9.5

 million associated with the bulk sale of fully charged-off consumer loans.

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

 Loans

Consumer Loans

Total

Quarter Ended March 31, 2023

(In thousands)

ACL:

Beginning balance

$

62,760

$

2,308

$

35,064

$

32,906

$

127,426

$

260,464

Impact of adoption of ASU 2022-02 

(1)

2,056

-

-

7

53

2,116

Provision for credit losses - expense (benefit) 

73

860

1,246

(1,650)

15,727

16,256

Charge-offs 

(983)

-

(18)

(118)

(16,798)

(17,917)

Recoveries

497

63

168

90

3,830

4,648

Ending balance

$

64,403

$

3,231

$

36,460

$

31,235

$

130,238

$

265,567

(1) Recognized as a result of the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans,

which had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023.

The Corporation estimates the ACL following the methodologies described in Note 1 – “Nature of Business and Summary of

Significant Accounting Policies” to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K,

as updated by the information contained in this report, for each portfolio segment .

The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the

ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to

each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading

national and regional economic indicators, and industry trends. As of March 31, 2024 and December 31, 2023, the Corporation

applied the baseline scenario for the commercial mortgage and construction loan portfolios as deterioration, particularly in variables

associated to the commercial real estate property performance in these portfolios was expected at a lower extent than projected in the

alternative downside scenario, particularly in the Puerto Rico region.

As of March 31, 2024, the ACL for loans and finance leases was $

263.6

 million, an increase of $

1.8

 million, from $

261.8

 million as

of December 31, 2023. The ACL for commercial and construction loans increased by $

1.9

 million, mainly due to increased volume,

particularly in the commercial and industrial loan portfolio, coupled with a deterioration on the economic outlook of certain

macroeconomic variables. 

 The ACL for consumer loans increased by $

0.6

 million mainly due to increases in historical charge-off levels, mainly in credit

cards, and increases in portfolio volumes in the auto loan and finance leases portfolios. This increase was partially offset by updated

macroeconomic variables, mainly in the projection of unemployment rates across all regions.

 Meanwhile, the ACL for residential mortgage loans decreased by $

0.7

 million,

mostly due to updated macroeconomic variables,

mainly in the projection of unemployment rates, partially offset by newly originated loans that have a longer life.

Net charge-offs were $

11.2

 million for the first quarter of 2024, compared to $

13.3

 million for the same period in 2023. The $

2.1

million decrease in net charge-offs was mainly driven by the $

9.5

 million recovery associated with the aforementioned bulk sale of

fully charged-off consumer loans during the first quarter of 2024 and a $

5.0

 million recovery associated with a commercial and

industrial loan in the Puerto Rico region, partially offset by an increase in consumer loans and finance leases charge-offs, mainly

reflected in the auto and personal loan portfolios, primarily associated with a higher delinquency during the quarter.

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

March 31,2024 and December 31, 2023:

As of March 31, 2024

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I 

Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

 Amortized cost of loans

$

2,801,587

$

237,288

$

2,361,731

$

3,230,995

$

3,679,847

$

12,311,448

 Allowance for credit losses

56,689

6,186

32,661

34,490

133,566

263,592

 Allowance for credit losses to

 amortized cost

2.02

%

2.61

%

1.38

%

1.07

%

3.63

%

2.14

%

As of December 31, 2023

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I 

Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

 Amortized cost of loans

$

2,821,726

$

214,777

$

2,317,083

$

3,174,232

$

3,657,665

$

12,185,483

 Allowance for credit losses

57,397

5,605

32,631

33,190

133,020

261,843

 Allowance for credit losses to

 amortized cost

2.03

%

2.61

%

1.41

%

1.05

%

3.64

%

2.15

%

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. See Note 21 –

“Regulatory Matters, Commitments and Contingencies” for information on off-balance sheet exposures as of March 31, 2024 and

December 31, 2023. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described

in Note 1 – “Nature of Business and Summary of Significant Accounting Policies” to the audited consolidated financial statements

included in the 2023 Annual Report on Form 10-K. As of March 31, 2024, the ACL for off-balance sheet credit exposures increased to

$

4.9

 million, from $

4.6

 million as of December 31, 2023.

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

ended March 31, 2024 and 2023:

Quarter Ended March 31,

2024

2023

(In thousands)

Beginning balance

$

4,638

$

4,273

Provision for credit losses - expense (benefit)

281

(105)

 Ending balance

$

4,919

$

4,168