XML 60 R49.htm IDEA: XBRL DOCUMENT

FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2017

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 June 30, 2017								As of December 31, 2016
	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	$	415	$	-	$	-	$	415	$	408	$	-	$	-	$	408
U.S. Treasury Securities		7,431		-		-		7,431		7,509		-		-		7,509
Noncallable U.S. agency debt		-		365,710		-		365,710		-		356,919		-		356,919
Callable U.S. agency debt and MBS		-		1,362,542		-		1,362,542		-		1,469,463		-		1,469,463
Puerto Rico government obligations		-		4,176		1,470		5,646		-		24,707		2,121		26,828
Private label MBS		-		-		18,201		18,201		-		-		20,693		20,693
Other investments		-		-		100		100		-		-		100		100
Derivatives, included in assets:
Purchased interest rate cap agreements		-		261		-		261		-		554		-		554
Forward contracts		-		137		-		137		-		-		-		-
Liabilities:
Derivatives, included in liabilities:
Written interest rate cap agreement		-		260		-		260		-		552		-		552
Forward contracts		-		30		-		30		-		201		-		201

Schedule of Changes in Fair Value

The tables below summarize changes in unrealized gains and losses recorded in earnings for the quarters and six-month periods ended June 30, 2017 and 2016 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 June 30, 2017)		(Quarter ended June 30, 2016)
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 available-for-sale investment securities (credit component)	$	-	$	-

	Changes in Unrealized Losses		Changes in Unrealized Losses
	(Six-Month Period Ended June 30, 2017)		(Six-Month Period Ended June 30, 2016)
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 available-for-sale investment securities (credit component)	$	-	$	(387)

Fair Value of Assets and Liabilities Measured on Recurring Basis

		Quarter Ended June 30,
		2017		2016
Level 3 Instruments Only		Securities		Securities
(In thousands)		Available For Sale⁽¹⁾		Available For Sale⁽¹⁾

Beginning balance		$	21,382	$	26,663
Total gains or (losses) (realized/unrealized):
Included in other comprehensive income			228		558
Principal repayments and amortization			(1,839)		(1,201)
Ending balance		$	19,771	$	26,020

(1)	Amounts mostly related to private label mortgage-backed securities.

		Six-Month Period Ended June 30,
		2017		2016
Level 3 Instruments Only		Securities		Securities
(In thousands)		Available For Sale⁽¹⁾		Available For Sale⁽¹⁾

Beginning balance		$	22,914	$	27,297
Total gains or (losses) (realized/unrealized):
Included in earnings			-		(387)
Included in other comprehensive income			746		1,816
Principal repayments and amortization			(3,889)		(2,706)
Ending balance		$	19,771	$	26,020

(1)	Amounts mostly related to private label mortgage-backed securities.

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

As of June 30, 2017, 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 June 30, 2017						(Losses) recorded for the Quarter Ended June 30, 2017		(Losses) recorded for the Six-Month Period Ended June 30, 2017
		Level 1		Level 2		Level 3
(In thousands)

Loans receivable⁽¹⁾		$	-	$	-	$	359,302	$	(5,341)	$	(22,707)
OREO⁽²⁾			-		-		150,045		(3,237)		(6,873)
Mortgage servicing rights⁽³⁾			-		-		26,502		(197)		(357)

(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), that are not market observable. Losses were related to market valuation adjustments after the transfer of the loans 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 include: Prepayment rate of 6.23%, Discount Rate of 11.21%.

As of June 30, 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 June 30, 2016						(Losses) recorded for the Quarter Ended June 30, 2016		(Losses) recorded for the Six-Month Period Ended June 30, 2016
		Level 1		Level 2		Level 3
(In thousands)

Loans receivable⁽¹⁾		$	-	$	-	$	464,467	$	(7,870)	$	(27,536)
OREO⁽²⁾			-		-		139,159		(3,436)		(5,727)
Mortgage servicing rights⁽³⁾			-		-		25,044		(151)		(124)

(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), that are not market observable. Losses were related to market valuation adjustments after the transfer of the loans 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 include: Prepayment Rate of 10.56%, Discount Rate of 10.67%.

Estimated Fair Value and Carrying Value of Financial Instruments

The following tables present the carrying value, estimated fair value and estimated fair value level of hierarchy of financial instruments as of June 30, 2017 and December 31, 2016:

	Total Carrying Amount in Statement of Financial Condition June 30, 2017		Fair Value Estimate June 30, 2017		Level 1		Level 2		Level 3

(In thousands)

Assets:
Cash and due from banks and money
market investments	$	432,564	$	432,564	$	432,564	$	-	$	-
Investment securities available
for sale		1,760,045		1,760,045		7,846		1,732,428		19,771
Investment securities held to maturity		156,049		134,944		-		-		134,944
Other equity securities		43,072		43,072		-		43,072		-
Loans held for sale		37,272		39,805		-		30,019		9,786
Loans held for investment		8,861,176
Less: allowance for loan and lease losses		(173,485)
Loans held for investment, net of allowance	$	8,687,691		8,403,999		-		-		8,403,999
Derivatives, included in assets		398		398		-		398		-

Liabilities:
Deposits		8,742,893		8,750,833		-		8,750,833		-
Securities sold under agreements to repurchase		300,000		333,114		-		333,114		-
Advances from FHLB		675,000		674,573		-		674,573		-
Other borrowings		216,187		187,612		-		-		187,612
Derivatives, included in liabilities		290		290		-		290		-

	Total Carrying Amount in Statement of Financial Condition December 31, 2016		Fair Value Estimate December 31, 2016		Level 1		Level 2		Level 3

(In thousands)

Assets:
Cash and due from banks and money
market investments	$	299,685	$	299,685	$	299,685	$	-	$	-
Investment securities available
for sale		1,881,920		1,881,920		7,917		1,851,089		22,914
Investment securities held to maturity		156,190		132,759		-		-		132,759
Other equity securities		42,992		42,992		-		42,992		-
Loans held for sale		50,006		52,707		-		42,921		9,786
Loans held for investment		8,886,873
Less: allowance for loan and lease losses		(205,603)
Loans held for investment, net of allowance	$	8,681,270		8,455,104		-		-		8,455,104
Derivatives, included in assets		554		554		-		554		-

Liabilities:
Deposits		8,831,205		8,838,606		-		8,838,606		-
Securities sold under agreements to repurchase		300,000		335,840		-		335,840		-
Advances from FHLB		670,000		669,687		-		669,687		-
Other borrowings		216,187		171,374		-		-		171,374
Derivatives, included in liabilities		753		753		-		753		-

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 are as follows:

	June 30, 2017
	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 6.23%; weighted average discount rate of 11.21%

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) as of June 30, 2017:

	June 30, 2017
(In thousands)	Fair Value		Valuation Technique	Unobservable Input	Range

Investment securities available-for-sale:

Private label MBS	$	18,201	Discounted cash flow	Discount rate	14.3%
				Prepayment rate	12.5% - 25.0% (Weighted Average 15.3%)
				Projected cumulative loss rate	0.1% - 6.8% (Weighted Average 3.6%)
Puerto Rico Government Obligations		1,470	Discounted cash flow	Prepayment rate	3.00%