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FAIR VALUE (Tables)
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
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 September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2020

 

As of December 31, 2019

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

7,531

 

$

-

 

$

-

 

$

7,531

 

$

7,479

 

$

-

 

$

-

 

$

7,479

Noncallable U.S. agency debt securities

 

-

 

 

74,837

 

 

-

 

 

74,837

 

 

-

 

 

146,777

 

 

-

 

 

146,777

Callable U.S. agency debt securities and MBS

 

-

 

 

3,195,869

 

 

-

 

 

3,195,869

 

 

-

 

 

1,950,331

 

 

-

 

 

1,950,331

Puerto Rico government obligations

 

-

 

 

4,016

 

 

2,907

 

 

6,923

 

 

-

 

 

4,348

 

 

2,974

 

 

7,322

Private label MBS

 

-

 

 

-

 

 

8,839

 

 

8,839

 

 

-

 

 

-

 

 

11,116

 

 

11,116

Other investments

 

-

 

 

-

 

 

650

 

 

650

 

 

-

 

 

-

 

 

500

 

 

500

Equity securities

 

1,475

 

 

-

 

 

-

 

 

1,475

 

 

1,428

 

 

-

 

 

-

 

 

1,428

Derivatives, included in assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

-

 

 

1,762

 

 

-

 

 

1,762

 

 

-

 

 

-

 

 

-

 

 

-

Purchased interest rate cap agreements

 

-

 

 

1

 

 

-

 

 

1

 

 

-

 

 

11

 

 

-

 

 

11

Interest rate lock commitments

 

-

 

 

951

 

 

-

 

 

951

 

 

-

 

 

341

 

 

-

 

 

341

Forward contracts

 

-

 

 

364

 

 

-

 

 

364

 

 

-

 

 

-

 

 

-

 

 

-

Forward loan sales commitments

 

-

 

 

20

 

 

-

 

 

20

 

 

-

 

 

20

 

 

-

 

 

20

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives, included in liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

-

 

 

1,789

 

 

-

 

 

1,789

 

 

-

 

 

-

 

 

-

 

 

-

Written interest rate cap agreements

 

-

 

 

1

 

 

-

 

 

1

 

 

-

 

 

11

 

 

-

 

 

11

Forward contracts

 

-

 

 

31

 

 

-

 

 

31

 

 

-

 

 

138

 

 

-

 

 

138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Fair Value of Assets and Liabilities Measured on Recurring Basis The table below presents a reconciliation of the beginning and ending balances of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters and nine-month periods ended September 30, 2020 and 2019:

 

 

Quarter Ended September 30,

 

 

2020

 

2019

Level 3 Instruments Only

Securities

 

Securities

(In thousands)

Available For Sale(1)

 

Available For Sale(1)

 

 

 

 

 

 

 

Beginning balance

$

12,643

 

$

15,906

Total gains (losses) (realized/unrealized):

 

 

 

 

 

Included in other comprehensive income

 

649

 

 

15

Included in earnings

 

-

 

 

(497)

BSPR securities acquired

 

150

 

 

-

Principal repayments and amortization

 

(1,046)

 

 

(414)

Ending balance

$

12,396

 

$

15,010

 

 

 

 

 

 

 

(1) Amounts mostly related to private label MBS.

 

 

 

 

Nine-Month Period Ended September 30,

 

 

2020

 

2019

Level 3 Instruments Only

Securities

 

Securities

(In thousands)

Available For Sale(1)

 

Available For Sale(1)

 

 

 

 

 

 

 

Beginning balance

$

14,590

 

$

17,238

Total gains (realized/unrealized):

 

 

 

 

 

Included in other comprehensive income

 

1,615

 

 

46

Included in earnings

 

(1,631)

 

 

(497)

BSPR securities acquired

 

150

 

 

-

Principal repayments and amortization

 

(2,328)

 

 

(1,777)

Ending balance

$

12,396

 

$

15,010

 

 

 

 

 

 

 

(1) Amounts mostly related to private label MBS.

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

As of September 30, 2020, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying value as of September 30, 2020

 

Losses recorded for the Quarter Ended September 30, 2020

 

Losses recorded for the Nine-Month Period Ended September 30, 2020

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (1)

$

-

 

$

-

 

$

239,256

 

$

(193)

 

$

(5,906)

OREO (2)

 

-

 

 

-

 

 

89,049

 

 

(999)

 

 

(1,775)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external appraisals that took 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 Corporation derived the fair values from appraisals that took 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 loans to the OREO portfolio.

As of September 30, 2019, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses recorded

 

Losses recorded

 

 

 

 

 

 

 

 

 

 

 

 

for the Quarter Ended

 

 

for the Nine-Month Period Ended

 

 

Carrying value as of September 30, 2019

 

September 30, 2019

 

September 30, 2019

 

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivable (1)

$

-

 

$

-

 

$

211,406

 

$

(6,221)

 

$

(14,546)

OREO (2)

 

-

 

 

-

 

 

103,033

 

 

(1,311)

 

 

(5,513)

Loans held for sale (3)

 

-

 

 

-

 

 

6,906

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external appraisals that took 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 Corporation derived the fair values from appraisals that took 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 loans to the OREO portfolio.

(3)

Represents nonaccrual commercial and construction loans transferred to held for sale in 2018 and still in inventory at period-end. The Corporation derived the fair value of these loans primarily from broker price opinions that the Corporation considered.
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 the hierarchy of financial instruments as of September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Carrying Amount in Statement of Financial Condition September 30, 2020

 

Fair Value Estimate September 30, 2020

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks and money

 

 

 

 

 

 

 

 

 

 

 

 

 

 

market investments (amortized cost)

$

2,469,507

 

$

2,469,507

 

$

2,469,507

 

$

-

 

$

-

Investment securities available

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for sale (fair value)

 

3,294,649

 

 

3,294,649

 

 

7,531

 

 

3,274,722

 

 

12,396

Investment securities held to maturity (amortized cost)

 

189,156

 

 

 

 

 

 

 

 

 

 

 

 

Less: allowance for credit losses on held to maturity securities

 

(10,176)

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities held to maturity, net of allowance

$

178,980

 

 

166,974

 

 

-

 

 

-

 

 

166,974

Equity Securities (fair value)

 

39,290

 

 

39,290

 

 

1,475

 

 

37,815

 

 

-

Loans held for sale (lower of cost or market)

 

48,670

 

 

50,518

 

 

-

 

 

50,518

 

 

-

Loans held for investment (amortized cost)

 

11,847,275

 

 

 

 

 

 

 

 

 

 

 

 

Less: allowance for credit losses for loans and finance leases

 

(384,718)

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment, net of allowance

$

11,462,557

 

 

11,502,824

 

 

-

 

 

-

 

 

11,502,824

Derivatives, included in assets (fair value)

 

3,098

 

 

3,098

 

 

-

 

 

3,098

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits (amortized cost)

$

15,202,898

 

$

15,243,104

 

$

-

 

$

15,243,104

 

$

-

Securities sold under agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to repurchase (amortized cost)

 

300,000

 

 

330,551

 

 

-

 

 

330,551

 

 

-

Advances from FHLB (amortized cost)

 

490,000

 

 

498,322

 

 

-

 

 

498,322

 

 

-

Other borrowings (amortized cost)

 

183,762

 

 

143,785

 

 

-

 

 

-

 

 

143,785

Derivatives, included in liabilities (fair value)

 

1,821

 

 

1,821

 

 

-

 

 

1,821

 

 

-

 

Total Carrying Amount in Statement of Financial Condition December 31, 2019

 

Fair Value Estimate December 31, 2019

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks and money

 

 

 

 

 

 

 

 

 

 

 

 

 

 

market investments (amortized cost)

$

644,099

 

$

644,099

 

$

644,099

 

$

-

 

$

-

Investment securities available

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for sale (fair value)

 

2,123,525

 

 

2,123,525

 

 

7,479

 

 

2,101,456

 

 

14,590

Investment securities held to maturity (amortized cost)

 

138,675

 

 

110,374

 

 

-

 

 

-

 

 

110,374

Equity securities (fair value)

 

38,249

 

 

38,249

 

 

1,428

 

 

36,821

 

 

-

Loans held for sale (lower of cost or market)

 

39,477

 

 

40,234

 

 

-

 

 

40,234

 

 

-

Loans held for investment (amortized cost)

 

9,002,205

 

 

 

 

 

 

 

 

 

 

 

 

Less: allowance for credit losses for loans and finance leases

 

(155,139)

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for investment, net of allowance

$

8,847,066

 

 

8,715,144

 

 

-

 

 

-

 

 

8,715,144

Derivatives, included in assets (fair value)

 

372

 

 

372

 

 

-

 

 

372

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits (amortized cost)

$

9,348,429

 

$

9,372,591

 

$

-

 

$

9,372,591

 

$

-

Securities sold under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

agreements to repurchase (amortized cost)

 

100,000

 

 

120,020

 

 

-

 

 

120,020

 

 

-

Advances from FHLB (amortized cost)

 

570,000

 

 

578,498

 

 

-

 

 

578,498

 

 

-

Other borrowings (amortized cost)

 

184,150

 

 

180,577

 

 

-

 

 

-

 

 

180,577

Derivatives, included in liabilities (fair value)

 

149

 

 

149

 

 

-

 

 

149

 

 

-
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 as of September 30, 2020 are as follows:

 

 

 

 

 

September 30, 2020

 

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

The tables below present qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2020 and December 31, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

Fair Value

 

Valuation Technique

 

Unobservable Input

 

Range

 

Weighted Average

(Dollars in thousands)

 

 

 

Minimum

Maximum

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Private label MBS

$

8,839

 

Discounted cash flows

 

Discount rate

 

12.4%

12.4%

 

12.4%

 

 

 

 

 

 

Prepayment rate

 

2.6%

13.7%

 

10.9%

 

 

 

 

 

 

Projected cumulative loss rate

 

2.4%

26.3%

 

11.8%

 

 

 

 

 

 

 

 

 

 

 

 

Puerto Rico government obligations

 

2,907

 

Discounted cash flows

 

Discount rate

 

8.5%

8.5%

 

8.5%

 

 

 

 

 

 

Projected cumulative loss rate

 

13.4%

13.4%

 

13.4%

 

December 31, 2019

 

 

 

Fair Value

 

Valuation Technique

 

Unobservable Input

 

Range

 

Weighted Average

(Dollars in thousands)

 

 

 

Minimum

Maximum

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

Private label MBS

$

11,116

 

Discounted cash flows

 

Discount rate

 

13.7%

13.7%

 

13.7%

 

 

 

 

 

 

Prepayment rate

 

6.8%

10.3%

 

7.9%

 

 

 

 

 

 

Projected cumulative loss rate

 

0.0%

7.4%

 

2.8%

 

 

 

 

 

 

 

 

 

 

 

 

Puerto Rico government obligations

 

2,974

 

Discounted cash flows

 

Discount rate

 

6.9%

6.9%

 

6.9%

 

 

 

 

 

 

Prepayment rate

 

3.0%

3.0%

 

3.0%
Schedule Of Changes In Unrealized Gains Losses [Table Text Block] The table below summarizes changes in unrealized gains and losses recorded in earnings for the quarters and nine-month periods ended September 30, 2020 and 2019 for Level 3 assets and liabilities that were still held at the end of each period:

 

Changes in Unrealized Losses

 

Quarter Ended September 30,

 

Nine-Month Period Ended September 30,

 

2020

 

2019

 

2020

 

2019

Level 3 Instruments Only

Securities Available for Sale

 

Securities Available for Sale

 

Securities Available for Sale

 

Securities Available for Sale

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Changes in unrealized losses relating to assets

 

 

 

 

 

 

 

 

 

 

 

still held at reporting date:

 

 

 

 

 

 

 

 

 

 

 

OTTI on available-for-sale investment

 

 

 

 

 

 

 

 

 

 

 

securities (credit component) (1)

$

-

 

$

(497)

 

$

-

 

$

(497)

Provision for credit losses (2)

 

-

 

 

-

 

 

(1,631)

 

 

-

Total

$

-

 

$

(497)

 

$

(1,631)

 

$

(497)