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Allowance for loan losses
 12 Months Ended
Dec. 31, 2016
Receivables  
Allowance for loan losses

Note 11 – Allowance for loan losses

The Corporation follows a systematic methodology to establish and evaluate the adequacy of the allowance for loan losses to provide for inherent losses in the loan portfolio. This methodology includes the consideration of factors such as current economic conditions, portfolio risk characteristics, prior loss experience and results of periodic credit reviews of individual loans. The provision for loan losses charged to current operations is based on this methodology. Loan losses are charged and recoveries are credited to the allowance for loan losses.

The Corporation’s assessment of the allowance for loan losses is determined in accordance with the guidance of loss contingencies in ASC Subtopic 450-20 and loan impairment guidance in ASC Section 310-10-35. Also, the Corporation determines the allowance for loan losses on purchased impaired loans and purchased loans accounted for under ASC Subtopic 310-30, by evaluating decreases in expected cash flows after the acquisition date. 

The accounting guidance provides for the recognition of a loss allowance for groups of homogeneous loans. The determination for general reserves of the allowance for loan losses includes the following principal factors:

  • Base net loss rates, which are based on the moving average of annualized net loss rates computed over a 5-year historical loss period for the commercial and construction loan portfolios, and an 18-month period for the consumer and mortgage loan portfolios.  The base net loss rates are applied by loan type and by legal entity.
  • Recent loss trend adjustment, which replaces the base loss rate with a 12-month average loss rate, when these trends are higher than the respective base loss rates. The objective of this adjustment is to allow for a more recent loss trend to be captured and reflected in the ALLL estimation process.   

For the period ended December 31, 2016, 38% (December 31, 2015 - 15%) of the ALLL for non-covered BPPR segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was mainly concentrated in the leasing, auto, revolving and commercial and industrial loan portfolios for 2016 and in the commercial multi-family, commercial and industrial and mortgage loan portfolios for 2015.

For the period ended December 31, 2016, 0.11% (December 31, 2015 - 4 %) of our BPNA segment loan portfolios utilized the recent loss trend adjustment instead of the base loss. The effect of replacing the base loss with the recent loss trend adjustment was concentrated in the commercial multifamily loan portfolio for 2016 and in the consumer loan portfolio for 2015.

  • Environmental factors, which include credit and macroeconomic indicators such as unemployment rate, economic activity index and delinquency rates, adopted to account for current market conditions that are likely to cause estimated credit losses to differ from historical losses. The Corporation reflects the effect of these environmental factors on each loan group as an adjustment that, as appropriate, increases the historical loss rate applied to each group. Environmental factors provide updated perspective on credit and economic conditions. Regression analysis is used to select these indicators and quantify the effect on the general reserve of the allowance for loan losses.

During the third quarter of 2016, management completed the annual review of the components of the ALLL models. As part of this review management updated core metrics related to the estimation process for evaluating the adequacy of the general reserve of the allowance for loan losses. These updates to the ALLL models, which are described in the paragraph below, were implemented as of September 30, 2016 and resulted in a net increase to the allowance for loan losses of $ 9.4 million for the non-covered portfolio. The effect of the aforementioned updates was immaterial for the covered loans portfolio.

Management made the following enhancements to the ALLL models during the third quarter of 2016:

  • Annual review and recalibration of the environmental factors adjustment. The environmental factor adjustments are developed by performing regression analyses on selected credit and economic indicators for each applicable loan segment. During the third quarter of 2016, the environmental factor models used to account for changes in current credit and macroeconomic conditions were reviewed and recalibrated based on the latest applicable trends.

The effect of the recalibration to the environmental factors adjustment resulted in an increase to the allowance for loan losses of $9.4 million at September 30, 2016, related to the non-covered BPPR segment. The effect of the recalibration was immaterial for the BPNA segment.

The following tables present the changes in the allowance for loan losses, loan ending balances and whether such loans and the allowance pertain to loans individually or collectively evaluated for impairment for the years ended December 31, 2016 and 2015.

For the year ended December 31, 2016
Puerto Rico - Non-covered loans
(In thousands)CommercialConstructionMortgageLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$186,925$4,957$128,327$10,993$138,721$469,923
Provision (reversal of provision)19,147(6,539)79,30955763,386155,860
Charge-offs(62,486)(3,103)(68,075)(6,151)(106,304)(246,119)
Recoveries41,7315,1243,7592,26329,99882,875
Net recoveries4,369914--1625,445
Ending balance$189,686$1,353$143,320$7,662$125,963$467,984
Specific ALLL$42,375$-$42,428$535$23,185$108,523
General ALLL$147,311$1,353$100,892$7,127$102,778$359,461
Loans held-in-portfolio:
Impaired non-covered loans$338,422$-$497,488$1,817$106,615$944,342
Non-covered loans held-in-portfolio
excluding impaired loans6,863,79585,5585,419,012701,0763,154,64116,224,082
Total non-covered loans held-in-portfolio$7,202,217$85,558$5,916,500$702,893$3,261,256$17,168,424

For the year ended December 31, 2016
Puerto Rico - Covered loans
(In thousands)CommercialConstructionMortgageLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$-$-$33,967$-$209$34,176
Provision (reversal of provision)--(1,092)-(18)(1,110)
Charge-offs--(3,524)-(19)(3,543)
Recoveries--808-19827
Ending balance$-$-$30,159$-$191$30,350
Specific ALLL$-$-$-$-$-$-
General ALLL$-$-$30,159$-$191$30,350
Loans held-in-portfolio:
Impaired covered loans$-$-$-$-$-$-
Covered loans held-in-portfolio
excluding impaired loans--556,570-16,308572,878
Total covered loans held-in-portfolio$-$-$556,570$-$16,308$572,878

For the year ended December 31, 2016
U.S. Mainland
(In thousands)CommercialConstructionMortgageLegacyConsumerTotal
Allowance for credit losses:
Beginning balance$9,908$3,912$4,985$2,687$11,520$33,012
Provision (reversal of provision)(253)4,2601,562(3,257)12,95415,266
Charge-offs(1,115)-(2,506)(535)(13,430)(17,586)
Recoveries4,428-5732,4484,17611,625
Ending balance$12,968$8,172$4,614$1,343$15,220$42,317
Specific ALLL$-$-$2,182$-$672$2,854
General ALLL$12,968$8,172$2,432$1,343$14,548$39,463
Loans held-in-portfolio:
Impaired loans$-$-$8,876$-$2,839$11,715
Loans held-in-portfolio
excluding impaired loans3,596,290690,742770,98545,293490,2985,593,608
Total loans held-in-portfolio$3,596,290$690,742$779,861$45,293$493,137$5,605,323

For the year ended December 31, 2016
Popular, Inc.
(In thousands)CommercialConstructionMortgageLegacyLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$196,833$8,869$167,279$2,687$10,993$150,450$537,111
Provision (reversal of provision)18,894(2,279)79,779(3,257)55776,322170,016
Charge-offs(63,601)(3,103)(74,105)(535)(6,151)(119,753)(267,248)
Recoveries46,1595,1245,1402,4482,26334,19395,327
Net recoveries4,369914---1625,445
Ending balance$202,654$9,525$178,093$1,343$7,662$141,374$540,651
Specific ALLL$42,375$-$44,610$-$535$23,857$111,377
General ALLL$160,279$9,525$133,483$1,343$7,127$117,517$429,274
Loans held-in-portfolio:
Impaired loans$338,422$-$506,364$-$1,817$109,454$956,057
Loans held-in-portfolio
excluding impaired loans10,460,085776,3006,746,56745,293701,0763,661,24722,390,568
Total loans held-in-portfolio$10,798,507$776,300$7,252,931$45,293$702,893$3,770,701$23,346,625

For the year ended December 31, 2015
Puerto Rico - Non-covered loans
(In thousands)CommercialConstructionMortgageLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$201,589$5,483$120,860$7,131$154,072$489,135
Provision (reversal of provision)88,680(2,836)57,8767,16565,947216,832
Charge-offs(105,716)(13,628)(53,296)(5,561)(110,384)(288,585)
Recoveries31,82614,5142,3052,25826,50877,411
Net write-downs related to transferred to held-for-sale(37,907)----(37,907)
Allowance transferred from covered loans8,4531,424582-2,57813,037
Ending balance$186,925$4,957$128,327$10,993$138,721$469,923
Specific ALLL$49,243$264$42,965$573$23,478$116,523
General ALLL$137,682$4,693$85,362$10,420$115,243$353,400
Loans held-in-portfolio:
Impaired non-covered loans$337,133$2,481$465,117$2,404$109,660$916,795
Non-covered loans held-in-portfolio
excluding impaired loans7,031,08698,4675,662,374625,2463,236,64216,653,815
Total non-covered loans held-in-portfolio$7,368,219$100,948$6,127,491$627,650$3,346,302$17,570,610

For the year ended December 31, 2015
Puerto Rico - Covered Loans
(In thousands)CommercialConstructionMortgageLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$30,871$7,202$40,948$-$3,052$82,073
Provision (reversal of provision)10,11515,150(1,011)-(234)24,020
Charge-offs(37,936)(25,086)(6,158)-(853)(70,033)
Recoveries6,5044,700930-84212,976
Net write-down related to loans transferred to held-for-sale(1,101)(542)(160)-(20)(1,823)
Allowance transferred to non-covered loans(8,453)(1,424)(582)-(2,578)(13,037)
Ending balance$-$-$33,967$-$209$34,176
Specific ALLL$-$-$-$-$-$-
General ALLL$-$-$33,967$-$209$34,176
Loans held-in-portfolio:
Impaired covered loans$-$-$-$-$-$-
Covered loans held-in-portfolio
excluding impaired loans--627,102-19,013646,115
Total covered loans held-in-portfolio$-$-$627,102$-$19,013$646,115

For the year ended December 31, 2015
U.S. Mainland
(In thousands)CommercialConstructionMortgageLegacyConsumerTotal
Allowance for credit losses:
Beginning balance$9,648$1,187$2,462$2,944$14,343$30,584
Provision (reversal of provision)(3,582)2,725(1,727)(3,017)6,227626
Charge-offs(1,452)-(1,670)(2,019)(9,507)(14,648)
Recoveries5,294-3914,7793,85814,322
Net (write-down) recovery related to loans transferred to held-for-sale--5,529-(3,401)2,128
Ending balance$9,908$3,912$4,985$2,687$11,520$33,012
Specific ALLL$-$-$1,064$-$485$1,549
General ALLL$9,908$3,912$3,921$2,687$11,035$31,463
Loans held-in-portfolio:
Impaired loans$-$-$6,815$-$2,176$8,991
Loans held-in-portfolio
excluding impaired loans2,730,944580,158901,77564,436489,2014,766,514
Total loans held-in-portfolio$2,730,944$580,158$908,590$64,436$491,377$4,775,505

For the year ended December 31, 2015
Popular, Inc.
(In thousands)CommercialConstructionMortgageLegacyLeasingConsumerTotal
Allowance for credit losses:
Beginning balance$242,108$13,872$164,270$2,944$7,131$171,467$601,792
Provision (reversal of provision)95,21315,03955,138(3,017)7,16571,940241,478
Charge-offs(145,104)(38,714)(61,124)(2,019)(5,561)(120,744)(373,266)
Recoveries43,62419,2143,6264,7792,25831,208104,709
Net write-down related to loans transferred to held-for-sale(39,008)(542)5,369--(3,421)(37,602)
Ending balance$196,833$8,869$167,279$2,687$10,993$150,450$537,111
Specific ALLL$49,243$264$44,029$-$573$23,963$118,072
General ALLL$147,590$8,605$123,250$2,687$10,420$126,487$419,039
Loans held-in-portfolio:
Impaired loans$337,133$2,481$471,932$-$2,404$111,836$925,786
Loans held-in-portfolio
excluding impaired loans9,762,030678,6257,191,25164,436625,2463,744,85622,066,444
Total loans held-in-portfolio$10,099,163$681,106$7,663,183$64,436$627,650$3,856,692$22,992,230

The following table provides the activity in the allowance for loan losses related to Westernbank loans accounted for pursuant to ASC Subtopic 310-30.

ASC 310-30 Westernbank loans
For the years ended
(In thousands)December 31, 2016December 31, 2015
Balance at beginning of period$63,563$78,846
Provision for loan losses1,34246,643
Net recoveries (charge-offs)3,972(61,926)
Balance at end of period$68,877$63,563

Impaired loans

The following tables present loans individually evaluated for impairment at December 31, 2016 and December 31, 2015.

December 31, 2016
Puerto Rico
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Commercial multi-family$82$82$34$-$-$82$82$34
Commercial real estate non-owner occupied104,119105,04724,53715,93529,631120,054134,67824,537
Commercial real estate owner occupied131,634169,01313,00731,96250,094163,596219,10713,007
Commercial and industrial46,86249,3014,7977,82811,47854,69060,7794,797
Mortgage426,737466,24942,42870,75187,806497,488554,05542,428
Leasing1,8171,817535--1,8171,817535
Consumer:
Credit cards37,46437,4645,588--37,46437,4645,588
Personal 66,04366,04316,955--66,04366,04316,955
Auto 2,1172,117474--2,1172,117474
Other991991168--991991168
Total Puerto Rico$817,866$898,124$108,523$126,476$179,009$944,342$1,077,133$108,523

December 31, 2016
U.S. mainland
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Mortgage$6,381$7,971$2,182$2,495$3,369$8,876$11,340$2,182
Consumer:
HELOCs2,4212,4296673003152,7212,744667
Personal3939579791181185
Total U.S. mainland$8,841$10,439$2,854$2,874$3,763$11,715$14,202$2,854

December 31, 2016
Popular, Inc.
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Commercial multi-family$82$82$34$-$-$82$82$34
Commercial real estate non-owner occupied104,119105,04724,53715,93529,631120,054134,67824,537
Commercial real estate owner occupied131,634169,01313,00731,96250,094163,596219,10713,007
Commercial and industrial46,86249,3014,7977,82811,47854,69060,7794,797
Mortgage433,118474,22044,61073,24691,175506,364565,39544,610
Leasing1,8171,817535--1,8171,817535
Consumer:
Credit Cards37,46437,4645,588--37,46437,4645,588
HELOCs2,4212,4296673003152,7212,744667
Personal66,08266,08216,960797966,16166,16116,960
Auto 2,1172,117474--2,1172,117474
Other991991168--991991168
Total Popular, Inc.$826,707$908,563$111,377$129,350$182,772$956,057$1,091,335$111,377

December 31, 2015
Puerto Rico
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Commercial real estate non-owner occupied$102,199$106,466$30,980$13,779$23,896$115,978$130,362$30,980
Commercial real estate owner occupied118,253137,19312,56438,95563,383157,208200,57612,564
Commercial and industrial42,04343,6295,69921,90432,92263,94776,5515,699
Construction2,4817,878264--2,4817,878264
Mortgage424,885468,24042,96540,23245,881465,117514,12142,965
Leasing2,4042,404573--2,4042,404573
Consumer:
Credit cards38,73438,7346,675--38,73438,7346,675
Personal 68,50968,50916,365--68,50968,50916,365
Auto 1,8931,893338--1,8931,893338
Other524525100--524525100
Total Puerto Rico$801,925$875,471$116,523$114,870$166,082$916,795$1,041,553$116,523

December 31, 2015
U.S. mainland
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Mortgage$4,143$5,018$1,064$2,672$3,574$6,815$8,592$1,064
Consumer:
HELOCs7787962597837831,5611,579259
Personal5345342268181615615226
Total U.S. mainland$5,455$6,348$1,549$3,536$4,438$8,991$10,786$1,549

December 31, 2015
Popular, Inc.
Impaired Loans – With an Impaired Loans
AllowanceWith No AllowanceImpaired Loans - Total
UnpaidUnpaidUnpaid
RecordedprincipalRelatedRecordedprincipalRecordedprincipalRelated
(In thousands)investmentbalanceallowanceinvestmentbalanceinvestmentbalanceallowance
Commercial real estate non-owner occupied$102,199$106,466$30,980$13,779$23,896$115,978$130,362$30,980
Commercial real estate owner occupied118,253137,19312,56438,95563,383157,208200,57612,564
Commercial and industrial42,04343,6295,69921,90432,92263,94776,5515,699
Construction2,4817,878264--2,4817,878264
Mortgage429,028473,25844,02942,90449,455471,932522,71344,029
Leasing2,4042,404573--2,4042,404573
Consumer:
Credit Cards38,73438,7346,675--38,73438,7346,675
HELOCs7787962597837831,5611,579259
Personal69,04369,04316,591818169,12469,12416,591
Auto 1,8931,893338--1,8931,893338
Other524525100--524525100
Total Popular, Inc.$807,380$881,819$118,072$118,406$170,520$925,786$1,052,339$118,072

The following tables present the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2016 and 2015.

For the year ended December 31, 2016
Puerto RicoU.S. MainlandPopular, Inc.
AverageInterestAverageInterestAverageInterest
recordedincomerecordedincomerecordedincome
(In thousands)investmentrecognizedinvestmentrecognizedinvestmentrecognized
Commercial multi-family$33$6$-$-$33$6
Commercial real estate non-owner occupied127,5085,275--127,5085,275
Commercial real estate owner occupied150,5635,757--150,5635,757
Commercial and industrial57,7521,959--57,7521,959
Construction1,107---1,107-
Mortgage479,58413,8608,212178487,79614,038
Leasing2,124---2,124-
Consumer:
Credit cards38,168---38,168-
HELOCs--1,937-1,937-
Personal 67,308-529-67,837-
Auto 2,575---2,575-
Other683---683-
Total Popular, Inc.$927,405$26,857$10,678$178$938,083$27,035

For the year ended December 31, 2015
Puerto RicoU.S. MainlandPopular, Inc.
AverageInterestAverageInterestAverageInterest
recordedincomerecordedincomerecordedincome
(In thousands)investmentrecognizedinvestmentrecognizedinvestmentrecognized
Commercial multi-family$606$-$-$-$606$-
Commercial real estate non-owner occupied107,4425,062--107,4425,062
Commercial real estate owner occupied138,6516,936--138,6516,936
Commercial and industrial121,3154,00150-121,3654,001
Construction6,35088--6,35088
Mortgage450,12216,1285,27989455,40116,217
Legacy--509-509-
Leasing2,710---2,710-
Consumer:
Credit cards40,239---40,239-
HELOCs--1,660-1,660-
Personal 70,046-427-70,473-
Auto 2,005---2,005-
Other561-17-578-
Covered loans3,527153--3,527153
Total Popular, Inc.$943,574$32,368$7,942$89$951,516$32,457

Modifications

Troubled debt restructurings related to non-covered loan portfolios amounted to $ 1.2 billion at December 31, 2016 (December 31, 2015 - $ 1.2 billion). The amount of outstanding commitments to lend additional funds to debtors owing receivables whose terms have been modified in troubled debt restructurings amounted $8 million related to the commercial loan portfolio at December 31, 2016 (December 31, 2015 - $11 million).

At December 31, 2016, the mortgage loan TDRs include $407 million guaranteed by U.S. sponsored entities at BPPR, this compares with $359 million at December 31, 2015.

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. For a summary of the accounting policy related to TDRs, refer to the summary of significant accounting policies included in Note 2 to these consolidated financial statements.

The following tables present the non-covered and covered loans classified as TDRs according to their accruing status and the related allowance at December 31, 2016 and December 31, 2015.

Popular, Inc.
Non-Covered Loans
December 31, 2016 December 31, 2015
(In thousands)AccruingNon-AccruingTotalRelated AllowanceAccruingNon-AccruingTotalRelated Allowance
Commercial$176,887$83,157$260,044$40,810$166,415$88,117$254,532$37,355
Construction----2212,2592,480264
Mortgage744,926127,071871,99744,610644,013130,483774,49644,029
Leases1,3834341,8175351,7916092,400573
Consumer100,27712,442112,71923,857104,63012,805117,43523,963
Total$1,023,473$223,104$1,246,577$109,812$917,070$234,273$1,151,343$106,184

Popular, Inc.
Covered Loans
December 31, 2016 December 31, 2015
(In thousands)AccruingNon-AccruingTotalRelated AllowanceAccruingNon-AccruingTotalRelated Allowance
Mortgage$2,950$2,580$5,530$-$3,328$3,268$6,596$-
Total$2,950$2,580$5,530$-$3,328$3,268$6,596$-

The following tables present the loan count by type of modification for those loans modified in a TDR during the years ended December 31, 2016 and 2015. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

Popular, Inc.
For the year ended December 31, 2016
Reduction in interest rateExtension of maturity dateCombination of reduction in interest rate and extension of maturity dateOther
Commercial real estate non-owner occupied71--
Commercial real estate owner occupied437--
Commercial and industrial367--
Mortgage7880505170
Leasing-11-
Consumer:
Credit cards766-2668
HELOCs-151
Personal1,0071911
Auto-1282
Other35---
Total1,972128522842

Popular, Inc.
For the year ended December 31, 2015
Reduction in interest rateExtension of maturity dateCombination of reduction in interest rate and extension of maturity dateOther
Commercial multi-family-2--
Commercial real estate non-owner occupied912--
Commercial real estate owner occupied3920--
Commercial and industrial3218--
Construction11--
Mortgage5756418113
Leasing-716-
Consumer:
Credit cards802--700
HELOCs-112
Personal1,01231-1
Auto-113-
Other49---
Total2,001159438816

The following tables present by class, quantitative information related to loans modified as TDRs during the years ended December 31, 2016 and 2015. Loans modified as TDRs for the U.S. operations are considered insignificant to the Corporation.

Popular, Inc.
For the year ended December 31, 2016
(Dollars in thousands)Loan countPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentIncrease (decrease) in the allowance for loan losses as a result of modification
Commercial real estate non-owner occupied8$7,667$10,272$5,109
Commercial real estate owner occupied5029,93530,097894
Commercial and industrial438,4029,733242
Mortgage83393,51190,8406,822
Leasing236378
Consumer:
Credit cards1,43613,32914,9182,042
HELOCs7602662296
Personal1,02817,19217,2963,548
Auto2226328154
Other35969817
Total3,464$171,033$174,234$19,032

Popular, Inc.
For the year ended December 31, 2015
(Dollars in thousands)Loan countPre-modification outstanding recorded investmentPost-modification outstanding recorded investmentIncrease (decrease) in the allowance for loan losses as a result of modification
Commercial multi-family2$551$551$2
Commercial real estate non-owner occupied2169,44269,59514,339
Commercial real estate owner occupied5920,32319,195889
Commercial and industrial5022,81823,757(6,994)
Construction2308298(170)
Mortgage64453,57570,5276,128
Leasing23651651148
Consumer:
Credit cards1,50212,85714,5522,238
HELOCs419729579
Personal1,04417,67117,7343,771
Auto1414219935
Other4912113220
Total3,414$198,656$217,486$20,485

The following tables present by class, TDRs that were subject to payment default and that had been modified as a TDR during the twelve months preceding the default date. Payment default is defined as a restructured loan becoming 90 days past due after being modified, foreclosed or charged-off, whichever occurs first. The recorded investment at December 31, 2016 is inclusive of all partial paydowns and charge-offs since the modification date. Loans modified as a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported.

Popular, Inc.
Defaulted during the year ended December 31, 2016
(Dollars In thousands)Loan countRecorded investment as of first default date
Commercial real estate non-owner occupied2$327
Commercial real estate owner occupied113,296
Commercial and industrial7905
Mortgage16918,261
Leasing328
Consumer:
Credit cards4514,794
HELOCs143
Personal1353,329
Auto9171
Other38
Total791$31,162

Popular, Inc.
Defaulted during the year ended December 31, 2015
(Dollars In thousands)Loan countRecorded investment as of first default date
Commercial real estate non-owner occupied3$7,269
Commercial real estate owner occupied1291
Commercial and industrial71,990
Construction31,442
Mortgage18928,364
Consumer:
Credit cards4154,185
Personal973,006
Auto697
Other21
Total723$46,645

Commercial, consumer and mortgage loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a TDR subsequently default, the Corporation evaluates the loan for possible further impairment.  The allowance for loan losses may be increased or partial charge-offs may be taken to further write-down the carrying value of the loan.

Credit Quality

The Corporation has defined a risk rating system to assign a rating to all credit exposures, particularly for the commercial and construction loan portfolios. Risk ratings in the aggregate provide the Corporation’s management the asset quality profile for the loan portfolio. The risk rating system provides for the assignment of ratings at the obligor level based on the financial condition of the borrower. The Corporation’s consumer and mortgage loans are not subject to the risk rating system. Consumer and mortgage loans are classified substandard or loss based on their delinquency status. All other consumer and mortgage loans that are not classified as substandard or loss would be considered “unrated”.

The Corporation’s obligor risk rating scales range from rating 1 (Excellent) to rating 14 (Loss). The obligor risk rating reflects the risk of payment default of a borrower in the ordinary course of business.

Pass Credit Classifications:

Pass (Scales 1 through 8) – Loans classified as pass have a well defined primary source of repayment, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and strong capitalization.

Watch (Scale 9) – Loans classified as watch have acceptable business credit, but borrower’s operations, cash flow or financial condition evidence more than average risk, requires above average levels of supervision and attention from Loan Officers.

Special Mention (Scale 10) - Loans classified as special mention have potential weaknesses that deserve management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Corporation’s credit position at some future date. 

Adversely Classified Classifications:

Substandard (Scales 11 and 12) - Loans classified as substandard are deemed to be inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any.  Loans classified as such have well-defined 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 (Scale 13) - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the additional characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. 

Loss (Scale 14) - Uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be effected in the future.

Risk ratings scales 10 through 14 conform to regulatory ratings. The assignment of the obligor risk rating is based on relevant information about the ability of borrowers to service their debts such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.

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 all lending groups in BPPR. This group evaluates the credit risk profile of each originating unit along with each unit’s credit administration effectiveness, 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 assess compliance with credit policies and underwriting standards, determine the current level of credit risk, evaluate the effectiveness of the credit management process and identify control deficiencies 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 following table presents the outstanding balance, net of unearned income, of non-covered loans held-in-portfolio based on the Corporation’s assignment of obligor risk ratings as defined at December 31, 2016 and 2015.

December 31, 2016
SpecialPass/
(In thousands)WatchMentionSubstandardDoubtfulLossSub-totalUnratedTotal
Puerto Rico[1]
Commercial multi-family$2,016$383$6,108$-$-$8,507$166,033$174,540
Commercial real estate non-owner occupied310,510377,858342,054155-1,030,5771,533,7082,564,285
Commercial real estate owner occupied310,484109,873360,94117,788-799,086992,3891,791,475
Commercial and industrial136,091133,270227,36011,51412508,2472,163,6702,671,917
Total Commercial759,101621,384936,46329,457122,346,4174,855,8007,202,217
Construction501,7051,668--3,42382,13585,558
Mortgage4,4071,987190,090--196,4845,720,0165,916,500
Leasing--3,062--3,062699,831702,893
Consumer:
Credit cards--18,725--18,7251,081,8821,100,607
HELOCs--185--1858,1668,351
Personal1,06881221,496--23,3761,126,8011,150,177
Auto--12,321--12,321814,271826,592
Other --19,311--19,311156,218175,529
Total Consumer1,06881272,038--73,9183,187,3383,261,256
Total Puerto Rico$764,626$625,888$1,203,321$29,457$12$2,623,304$14,545,120$17,168,424
U.S. mainland
Commercial multi-family$13,537$7,796$658$-$-$21,991$1,042,305$1,064,296
Commercial real estate non-owner occupied57,1119,7781,720--68,6091,288,7071,357,316
Commercial real estate owner occupied9,271-9,119--18,390225,355243,745
Commercial and industrial3,048937153,793--157,778773,155930,933
Total Commercial82,96718,511165,290--266,7683,329,5223,596,290
Construction3,0008,15316,950--28,103662,639690,742
Mortgage--11,711--11,711768,150779,861
Legacy9217864,400--6,10739,18645,293
Consumer:
Credit cards--30--30128158
HELOCs--1,923-2,8394,762247,413252,175
Personal--1,252-6091,861238,746240,607
Auto------99
Other --8--8180188
Total Consumer--3,213-3,4486,661486,476493,137
Total U.S. mainland$86,888$27,450$201,564$-$3,448$319,350$5,285,973$5,605,323
Popular, Inc.
Commercial multi-family$15,553$8,179$6,766$-$-$30,498$1,208,338$1,238,836
Commercial real estate non-owner occupied367,621387,636343,774155-1,099,1862,822,4153,921,601
Commercial real estate owner occupied319,755109,873370,06017,788-817,4761,217,7442,035,220
Commercial and industrial139,139134,207381,15311,51412666,0252,936,8253,602,850
Total Commercial842,068639,8951,101,75329,457122,613,1858,185,32210,798,507
Construction3,0509,85818,618--31,526744,774776,300
Mortgage4,4071,987201,801--208,1956,488,1666,696,361
Legacy9217864,400--6,10739,18645,293
Leasing--3,062--3,062699,831702,893
Consumer:
Credit cards--18,755--18,7551,082,0101,100,765
HELOCs--2,108-2,8394,947255,579260,526
Personal1,06881222,748-60925,2371,365,5471,390,784
Auto--12,321--12,321814,280826,601
Other --19,319--19,319156,398175,717
Total Consumer1,06881275,251-3,44880,5793,673,8143,754,393
Total Popular, Inc.$851,514$653,338$1,404,885$29,457$3,460$2,942,654$19,831,093$22,773,747
The following table presents the weighted average obligor risk rating at December 31, 2016 for those classifications that consider a range of rating scales.
Weighted average obligor risk rating(Scales 11 and 12)(Scales 1 through 8)
Puerto Rico:[1]SubstandardPass
Commercial multi-family11.125.95
Commercial real estate non-owner occupied11.076.91
Commercial real estate owner occupied11.237.09
Commercial and industrial11.097.19
Total Commercial11.147.06
Construction11.007.67
U.S. mainland:SubstandardPass
Commercial multi-family11.317.26
Commercial real estate non-owner occupied11.706.67
Commercial real estate owner occupied11.057.32
Commercial and industrial11.656.15
Total Commercial11.626.78
Construction11.007.67
Legacy11.107.91

[1]Excludes covered loans acquired in the Westernbank FDIC-assisted transaction.

December 31, 2015
SpecialPass/
(In thousands)WatchMentionSubstandardDoubtfulLossSub-totalUnratedTotal
Puerto Rico[1]
Commercial multi-family$1,750$1,280$8,103$-$-$11,133$121,013$132,146
Commercial real estate non-owner occupied319,564423,095399,076--1,141,7351,527,3572,669,092
Commercial real estate owner occupied316,079162,395436,4421,915-916,831992,4131,909,244
Commercial and industrial187,620146,216256,82169029591,3762,066,3612,657,737
Total Commercial825,013732,9861,100,4422,605292,661,0754,707,1447,368,219
Construction7,2695,52219,806--32,59768,351100,948
Mortgage4,8102,794238,002--245,6065,881,8856,127,491
Leasing--3,009--3,009624,641627,650
Consumer:
Credit cards--19,098--19,0981,109,2471,128,345
HELOCs--394--39410,29410,688
Personal1,6061,44823,116--26,1701,176,6651,202,835
Auto--11,609-3011,639804,311815,950
Other --18,656-57519,231169,253188,484
Total Consumer1,6061,44872,873-60576,5323,269,7703,346,302
Total Puerto Rico$838,698$742,750$1,434,132$2,605$634$3,018,819$14,551,791$17,570,610
U.S. mainland
Commercial multi-family$14,129$7,189$427$-$-$21,745$672,188$693,933
Commercial real estate non-owner occupied57,4506,74116,646--80,837882,186963,023
Commercial real estate owner occupied11,9781,0742,967--16,019186,325202,344
Commercial and industrial10,8275,344131,933--148,104723,540871,644
Total Commercial94,38420,348151,973--266,7052,464,2392,730,944
Construction15,09116,94818,856--50,895529,263580,158
Mortgage--13,537--13,537895,053908,590
Legacy1,8231,9736,134--9,93054,50664,436
Consumer:
Credit cards------13,93513,935
HELOCs--1,550-2,6264,176300,308304,484
Personal--637-6031,240171,386172,626
Auto------2828
Other ----55299304
Total Consumer--2,187-3,2345,421485,956491,377
Total U.S. mainland$111,298$39,269$192,687$-$3,234$346,488$4,429,017$4,775,505
Popular, Inc.
Commercial multi-family$15,879$8,469$8,530$-$-$32,878$793,201$826,079
Commercial real estate non-owner occupied377,014429,836415,722--1,222,5722,409,5433,632,115
Commercial real estate owner occupied328,057163,469439,4091,915-932,8501,178,7382,111,588
Commercial and industrial198,447151,560388,75469029739,4802,789,9013,529,381
Total Commercial919,397753,3341,252,4152,605292,927,7807,171,38310,099,163
Construction22,36022,47038,662--83,492597,614681,106
Mortgage4,8102,794251,539--259,1436,776,9387,036,081
Legacy1,8231,9736,134--9,93054,50664,436
Leasing--3,009--3,009624,641627,650
Consumer:
Credit cards--19,098--19,0981,123,1821,142,280
HELOCs--1,944-2,6264,570310,602315,172
Personal1,6061,44823,753-60327,4101,348,0511,375,461
Auto--11,609-3011,639804,339815,978
Other --18,656-58019,236169,552188,788
Total Consumer1,6061,44875,060-3,83981,9533,755,7263,837,679
Total Popular, Inc.$949,996$782,019$1,626,819$2,605$3,868$3,365,307$18,980,808$22,346,115
The following table presents the weighted average obligor risk rating at December 31, 2015 for those classifications that consider a range of rating scales.
Weighted average obligor risk rating(Scales 11 and 12)(Scales 1 through 8)
Puerto Rico:[1]SubstandardPass
Commercial multi-family11.136.04
Commercial real estate non-owner occupied11.096.67
Commercial real estate owner occupied11.237.08
Commercial and industrial11.157.13
Total Commercial11.166.95
Construction11.187.56
U.S. mainland:SubstandardPass
Commercial multi-family11.007.15
Commercial real estate non-owner occupied11.026.92
Commercial real estate owner occupied11.077.23
Commercial and industrial11.576.24
Total Commercial11.506.81
Construction11.007.79
Legacy11.117.78

[1] Excludes covered loans acquired in the Westernbank FDIC-assisted transaction.