FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2016

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:
	As of March 31, 2016								As of December 31, 2015
	Fair Value Measurements Using								Fair Value Measurements Using
(In thousands)	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value		Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Securities available for sale :
Equity securities	$	414	$	-	$	-	$	414	$	-	$	-	$	-	$	-
U.S. Treasury Securities		7,518		-		-		7,518		7,497		-		-		7,497
Noncallable U.S. agency debt		-		335,572		-		335,572		-		315,467		-		315,467
Callable U.S. agency debt and MBS		-		1,509,609		-		1,509,609		-		1,509,807		-		1,509,807
Puerto Rico government obligations		-		24,479		1,969		26,448		-		26,327		1,890		28,217
Private label MBS		-		-		24,594		24,594		-		-		25,307		25,307
Other investments		-		-		100		100		-		-		100		100
Derivatives, included in assets:
Purchased interest rate cap agreements		-		368		-		368		-		806		-		806
Liabilities:
Derivatives, included in liabilities:
Written interest rate cap agreement		-		364		-		364		-		798		-		798
Forward contracts		-		272		-		272		-		123		-		123

Fair Value of Assets and Liabilities Measured on Recurring Basis

		Total Fair Value Measurements
		Quarter ended March 31,
		2016		2015
Level 3 Instruments Only		Securities		Securities
(In thousands)		Available For Sale(1)		Available For Sale(1)
Beginning balance		$	27,297		36,212
Total gains (losses) (realized/unrealized):
Included in earnings			(387)		(156)
Included in other comprehensive income			1,258		619
Held-to-Maturity investment securities reclassified to Available-for-Sale
Sales
Purchases			-		100
Principal repayments and amortization			(1,505)		(2,461)
Ending balance		$	26,663	$	34,314
(1)	Amounts mostly related to private label mortgage-backed securities.

Impairment or Valuation Adjustments were Recorded for Assets Recognized at Fair Value

The table below summarizes changes in unrealized gains and losses recorded in earnings for the quarters ended March 31, 2016 and 2015 for Level 3 assets and liabilities that are still held at the end of each period:
		Changes in Unrealized Losses		Changes in Unrealized Losses
		(Quarter ended March 31, 2016)		(Quarter Ended March 31, 2015)
Level 3 Instruments Only	Securities		Securities
(In thousands)	Available For Sale		Available For Sale
Changes in unrealized losses relating to assets still held at reporting date:
Net impairment losses on investment securities (credit component)		$ (387)		$ (156)

As of March 31, 2016, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:
		Carrying value as of March 31, 2016						(Losses) Gain recorded for the Quarter Ended March 31, 2016
		Level 1		Level 2		Level 3
			(In thousands)
Loans receivable (1)		$	-	$	-	$	304,498	$	675
Other Real Estate Owned (2)			-		-		142,888		(2,910)
Mortgage servicing rights (3)			-		-		24,692		27
Loans Held For Sale (4)			-		-		8,079		-
(1)	Consist mainly of impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was derived from external appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable.
(2)	The fair value was derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loan to the OREO portfolio.
(3)	Fair value adjustments to mortgage servicing rights were mainly due to assumptions associated with mortgage prepayment rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights included: Prepayment rate-10.06%, Discount Rate-10.66%.

As of March 31, 2015, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:
		Carrying value as of March 31, 2015						Losses recorded for the Quarter Ended March 31, 2015
		Level 1		Level 2		Level 3
		(In thousands)
Loans receivable (1)		$	-	$	-	$	436,944	$	(13,725)
Other Real Estate Owned (2)			-		-		122,628		(2,711)
Mortgage servicing rights (3)			-		-		22,973		(38)
Loans Held For Sale (4)			-		-		54,588		-
(1)	Consist mainly of impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was derived from external appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g. absorption rates), which are not market observable.
(2)	The fair value was derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loan to the OREO portfolio.
(3)	Fair value adjustments to the mortgage servicing rights were mainly due to assumptions associated with mortgage prepayments rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights included: Prepayment Rate-10.25%, Discount Rate-10.62%.
(4)	The value of these loans was derived from external appraisals, adjusted for specific characteristics of the loans.

Estimated Fair Value and Carrying Value of Financial Instruments

The following table presents the estimated fair value and carrying value of financial instruments as of March 31, 2016 and December 31, 2015
	Total Carrying Amount in Statement of Financial Condition March 31, 2016		Fair Value Estimate March 31, 2016		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Cash and due from banks and money
market investments	$	1,026,825	$	1,026,825	$	1,026,825	$	-	$	-
Investment securities available
for sale		1,904,255		1,904,255		7,932		1,869,660		26,663
Other equity securities		32,310		32,310		-		32,310		-
Loans held for sale		37,868		41,138		-		30,718		10,420
Loans held for investment		9,131,342
Less: allowance for loan and lease losses		(238,125)
Loans held for investment, net of allowance	$	8,893,217		8,855,624		-		-		8,855,624
Derivatives, included in assets		368		368		-		368		-
Liabilities:
Deposits		9,434,780		9,451,510		-		9,451,510		-
Securities sold under agreements to repurchase		700,000		721,312		-		721,312		-
Advances from FHLB		455,000		456,895		-		456,895		-
Other borrowings		216,183		159,598		-		-		159,598
Derivatives, included in liabilities		636		636		-		636		-

	Total Carrying Amount in Statement of Financial Condition December 31, 2015		Fair Value Estimate December 31, 2015		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Cash and due from banks and money
market investments	$	752,458	$	752,458	$	752,458	$	-	$	-
Investment securities available
for sale		1,886,395		1,886,395		7,497		1,851,601		27,297
Other equity securities		32,169		32,169		-		32,169		-
Loans held for sale		35,869		36,844		-		28,709		8,135
Loans held for investment		9,273,865
Less: allowance for loan and lease losses		(240,710)
Loans held for investment, net of allowance	$	9,033,155		8,899,696		-		-		8,899,696
Derivatives, included in assets		806		806		-		806		-
Liabilities:
Deposits		9,338,124		9,334,073		-		9,334,073		-
Securities sold under agreements to repurchase		700,000		752,048		-		752,048		-
Advances from FHLB		455,000		453,182		-		453,182		-
Other borrowings		226,492		142,846		-		-		142,846
Derivatives, included in liabilities		921		921		-		921		-

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

Qualitative information regarding the fair value measurements for Level 3 financial instruments is as follows:
	March 31, 2016
	Method	Inputs
Loans	Income, Market, Comparable Sales, Discounted Cash Flows	External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors
OREO	Income, Market, Comparable Sales, Discounted Cash Flows	External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors
Mortgage servicing rights	Discounted Cash Flow	Weighted average prepayment rate of 10.06%; weighted average discount rate of 10.66%

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

The table below presents qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2016:
	March 31, 2016
(In thousands)	Fair Value		Valuation Technique	Unobservable Input	Range
Investment securities available-for-sale:
Private label MBS	$	24,505	Discounted cash flow	Discount rate	14.5%
				Prepayment rate	21.45% -100% (Weighted Average 30%)
				Projected Cumulative Loss Rate	0.50% -80% (Weighted Average 7%)
Puerto Rico Government Obligations		1,969	Discounted cash flow	Prepayment rate	3.00%