FAIR VALUE

12 Months Ended

Dec. 31, 2024

FAIR VALUE [Abstract]

FAIR VALUE

NOTE 23 – FAIR VALUE

Fair Value Measurement

 ASC Topic 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid to

transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction

between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying assets and

liabilities, which is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable.

One of three levels of inputs may be used to measure fair value:

 Level 1 

Valuations of Level 1 assets and liabilities are obtained from readily-available pricing sources for market

transactions involving identical assets or liabilities in active markets.

 Level 2 

Va

luations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted

prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market

data for substantially the full term of the assets or liabilities.

 Level 3 

Va

luations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market

activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial

instruments whose value is determined by using pricing models for which the determination of fair value requires

significant management judgment as to the estimation.

 Following is a description of the valuation methodologies used to measure financial instruments at fair value on a recurring basis,

as well as the classification of such instruments pursuant to the fair value hierarchy. There were no transfers of assets and liabilities

measured at fair value between Level 1 and Level 2 measurements during the years ended December 31, 2024 and 2023.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Available-for-sale debt securities and marketable equity securities held at fair value

 The fair value of investment securities was based on unadjusted quoted market prices (as is the case with U.S. Treasury securities

and equity securities with readily determinable fair values), when available (Level 1), or market prices for comparable assets (as is the

case with U.S. agencies MBS and U.S. agency debt securities) that are based on observable market parameters, including benchmark

yields, reported trades, quotes from brokers or dealers, issuer spreads, bids, offers and reference data, including market research

operations, when available (Level 2). Observable prices in the market already consider the risk of nonperformance. If listed prices or

quotes are not available, fair value is based upon discounted cash flow models that use unobservable inputs due to the limited market

activity of the instrument, as is the case with certain private label MBS held by the Corporation (Level 3).

Derivative instruments

 The fair value of most of the Corporation’s derivative instruments is based on observable market parameters (Level 2) and takes

into consideration the credit risk component of paying counterparties, when appropriate. On interest rate caps, only the seller’s credit

risk is considered. The Corporation valued the interest rate swaps and caps using a discounted cash flow approach based on the related

reference rate for each cash flow.

Assets and liabilities measured at fair value on a recurring basis are summarized below as of December 31, 2024 and 2023:

As of December 31, 2024

As of December 31, 2023

Fair Value Measurements Using 

Fair Value Measurements Using 

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

 Available-for-sale debt securities:

U.S. Treasury securities

$

59,189

$

-

$

-

$

59,189

$

135,393

$

-

$

-

$

135,393

Noncallable U.S. agencies debt securities

-

533,296

-

533,296

-

433,437

-

433,437

Callable U.S. agencies debt securities

-

1,307,035

-

1,307,035

-

1,874,960

-

1,874,960

MBS

-

2,658,967

4,195

(1)

2,663,162

-

2,779,994

4,785

(1)

2,784,779

Puerto Rico government obligation

-

-

1,620

1,620

-

-

1,415

1,415

Other investments

-

-

1,000

1,000

-

-

-

-

 Equity securities

4,886

-

-

4,886

4,893

-

-

4,893

 Derivative assets

-

318

-

318

-

341

-

341

Liabilities:

 Derivative liabilities

-

150

-

150

-

317

-

317

(1) Related to private label MBS.

The table below presents a reconciliation of the beginning and ending balances of all assets measured at fair value on a recurring

basis using significant unobservable inputs (Level 3) for the years ended December 31, 2024, 2023, and 2022:

 Available-for-Sale Debt Securities

(1)

Level 3 Instruments Only 

2024

2023

2022

(In thousands)

Beginning balance

$

6,200

$

8,495

$

11,084

 Total gains (losses):

 Included in other comprehensive income (loss) (unrealized)

830

(750)

(401)

Included in earnings (unrealized) (2)

50

(20)

434

 Purchases

1,000

-

-

 Principal repayments and amortization

(3)

(1,265)

(1,525)

(2,622)

Ending balance

$

6,815

$

6,200

$

8,495

(1)

 Amounts mostly related to private label MBS.

(2)

 Changes in unrealized gains (losses) included in earnings were recognized within provision for credit losses - expense and relate to assets still held as of the reporting date.

(3)

 For each of the years ended December 31, 2023 and 2022, includes a $

0.5

 million repayment of a matured debt security.

The tables below present quantitative information for significant assets measured at fair value on a recurring basis using

significant unobservable inputs (Level 3) as of December 31, 2024 and 2023:

December 31, 2024

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum 

Maximum

(Dollars in thousands)

Available-for-sale debt securities:

 Private label MBS

$

4,195

Discounted cash flows

Discount rate

16.6%

16.6%

16.6%

Prepayment rate

0.0%

5.7%

3.2%

Projected cumulative loss rate

0.1%

10.1%

4.9%

 Puerto Rico government obligation

$

1,620

Discounted cash flows

Discount rate

11.5%

11.5%

11.5%

Projected cumulative loss rate

23.9%

23.9%

23.9%

December 31, 2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum 

Maximum

(Dollars in thousands)

Available-for-sale debt securities:

 Private label MBS

$

4,785

Discounted cash flows

Discount rate

16.1%

16.1%

16.1%

Prepayment rate

0.0%

6.9%

3.7%

Projected cumulative loss rate

0.1%

10.9%

4.2%

 Puerto Rico government obligation

$

1,415

Discounted cash flows

Discount rate

14.1%

14.1%

14.1%

Projected cumulative loss rate

25.8%

25.8%

25.8%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption,

and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default,

loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of the

instruments. The Corporation modeled meaningful and possible shifts of each input to assess the effect on the fair value estimation.

Puerto Rico Government Obligation: The significant unobservable input used in the fair value measurement is the assumed loss rate of

the underlying residential mortgage loans that collateralize a pass-through MBS guaranteed by the PRHFA. A significant increase

(decrease) in the assumed rate would lead to a (lower) higher fair value estimate. See Note 3 – “Debt Securities” for information on

the methodology used to calculate the fair value of this debt security.

Additionally, fair value is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.

For the years ended December 31, 2024, 2023, and 2022, the Corporation recorded losses or valuation adjustments for assets

recognized at fair value on a non-recurring basis and still held at the respective reporting dates, as shown in the following table:

Carrying value as of December 31,

Related to losses recorded for the Year Ended

December 31,

2024

2023

2022

2024

2023

2022

(In thousands)

Level 3:

Loans receivable

(1)

$

16,296

$

15,609

$

11,437

$

(373)

$

(1,839)

$

(736)

OREO

(2)

1,471

3,218

5,461

(100)

(416)

(917)

Premises and equipment

(3)

-

-

1,242

-

-

(218)

Level 2:

Loans held for sale

(4)

$

15,276

$

-

$

12,306

$

(78)

$

-

$

(106)

(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. The haircuts applied on appraisals for the year ended December 31, 2024 were

8

%, and for the year ended December 31, 2023 the haircuts ranged from

16

% to

20

%. There were no haircuts

applied on appraisals for the year ended December 31, 2022.

(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. The haircuts applied on appraisals ranged from

2

% to

44

% for the year ended December 31, 2024 and

1

% to

28

%, for the years ended December 31 , 2023 and 2022.

(3)

Relates to a banking facility reclassified to held-for-sale and measured at the fair value of the collateral. 

(4)

The Corporation derived the fair value of these loans based on published secondary market prices of MBS with similar characteristics.

Qualitative information regarding the financial instruments measured at fair value on a non-recurring basis using significant

unobservable inputs (Level 3) as of December 31, 2024 are as follows:

December 31, 2024

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

Premises and equipment

Market

External appraised value

The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial

instruments as of December 31, 2024 and 2023:

Total Carrying Amount

in Statement of

Financial Condition as

of December 31, 2024

Fair Value Estimate as of

December 31, 2024

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized cost)

$

1,159,415

$

1,159,415

$

1,159,415

$

-

$

-

Available-for-sale debt securities (fair value)

4,565,302

4,565,302

59,189

4,499,298

6,815

Held-to-maturity debt securities:

 Held-to-maturity debt securities (amortized cost)

317,786

 Less: ACL on held-to-maturity debt securities

(802)

 Held-to-maturity debt securities, net of ACL

$

316,984

308,040

-

212,432

95,608

Equity securities (amortized cost)

47,132

47,132

-

47,132

(1)

-

Other equity securities (fair value)

4,886

4,886

4,886

-

-

Loans held for sale (lower of cost or market)

15,276

15,276

-

15,276

-

Loans held for investment:

 Loans held for investment (amortized cost)

12,746,556

 Less: ACL for loans and finance leases

(243,942)

 Loans held for investment, net of ACL

$

12,502,614

12,406,405

-

-

12,406,405

MSRs (amortized cost)

25,019

43,046

-

-

43,046

Derivative assets (fair value)

 (2)

318

318

-

318

-

Liabilities:

Deposits (amortized cost)

$

16,871,298

$

16,872,963

$

-

$

16,872,963

$

-

Long-term advances from the FHLB (amortized cost)

500,000

500,128

-

500,128

-

Junior subordinated debentures (amortized cost)

61,700

61,752

-

-

61,752

Derivative liabilities (fair value)

 (2)

150

150

-

150

-

(1) Includes FHLB stock with a carrying value of $

34.0

 million, which is considered restricted.

(2) Includes interest rate swap agreements and forward contracts.

Total Carrying Amount

in Statement of

Financial Condition as

of December 31, 2023

Fair Value Estimate as of

December 31, 2023

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized cost)

$

663,164

$

663,164

$

663,164

$

-

$

-

Available-for-sale debt securities (fair value)

5,229,984

5,229,984

135,393

5,088,391

6,200

Held-to-maturity debt securities:

 Held-to-maturity debt securities (amortized cost)

354,178

 Less: ACL on held-to-maturity debt securities

(2,197)

 Held-to-maturity debt securities, net of ACL

$

351,981

346,132

-

235,239

110,893

Equity securities (amortized cost)

44,782

44,782

-

44,782

(1)

-

Other equity securities (fair value)

4,893

4,893

4,893

-

-

Loans held for sale (lower of cost or market)

7,368

7,476

-

7,476

-

Loans held for investment: 

 Loans held for investment (amortized cost)

12,185,483

 Less: ACL for loans and finance leases

(261,843)

 Loans held for investment, net of ACL

$

11,923,640

11,762,855

-

-

11,762,855

MSRs (amortized cost)

26,941

45,244

-

-

45,244

Derivative assets (fair value)

(2)

341

341

-

341

-

Liabilities:

Deposits (amortized cost)

$

16,555,985

$

16,565,435

$

-

$

16,565,435

$

-

Long-term advances from the FHLB (amortized cost)

500,000

500,522

-

500,522

-

Junior subordinated debentures (amortized cost)

161,700

159,999

-

-

159,999

Derivative liabilities (fair value)

(2)

317

317

-

317

-

(1) Includes FHLB stock with a carrying value of $

34.6

 million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, forward contracts and interest rate lock commitments.

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and

cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and

equipment, goodwill and other intangible assets, are not considered financial instruments and are not included above. Accordingly,

this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and

liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These

estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to,

relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.