Fair value measurement (Tables)

6 Months Ended

Jun. 30, 2020

Fair Value Disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

At June 30, 2020
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	5,998,853	$	8,009,377	$	-	$	14,008,230
Obligations of U.S. Government sponsored entities		-		61,229		-		61,229
Collateralized mortgage obligations - federal agencies		-		514,229		-		514,229
Mortgage-backed securities		-		6,178,331		1,151		6,179,482
Other		-		283		-		283
Total debt securities available-for-sale	$	5,998,853	$	14,763,449	$	1,151	$	20,763,453
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	3,906	$	-	$	-	$	3,906
Obligations of Puerto Rico, States and political subdivisions		-		111		-		111
Collateralized mortgage obligations		-		76		442		518
Mortgage-backed securities		-		25,599		-		25,599
Other		-		3,003		423		3,426
Total trading account debt securities, excluding derivatives	$	3,906	$	28,789	$	865	$	33,560
Equity securities	$	-	$	25,058	$	-	$	25,058
Mortgage servicing rights		-		-		141,144		141,144
Derivatives		-		15,365		-		15,365
Total assets measured at fair value on a recurring basis	$	6,002,759	$	14,832,661	$	143,160	$	20,978,580
Liabilities
Derivatives	$	-	$	(12,612)	$	-	$	(12,612)
Total liabilities measured at fair value on a recurring basis	$	-	$	(12,612)	$	-	$	(12,612)

At December 31, 2019
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	3,841,715	$	8,214,540	$	-	$	12,056,255
Obligations of U.S. Government sponsored entities		-		122,404		-		122,404
Obligations of Puerto Rico, States and political subdivisions		-		6,975		-		6,975
Collateralized mortgage obligations - federal agencies		-		586,175		-		586,175
Mortgage-backed securities		-		4,875,132		1,182		4,876,314
Other		-		350		-		350
Total debt securities available-for-sale	$	3,841,715	$	13,805,576	$	1,182	$	17,648,473
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	7,081	$	2	$	-	$	7,083
Obligations of Puerto Rico, States and political subdivisions		-		633		-		633
Collateralized mortgage obligations		-		76		530		606
Mortgage-backed securities		-		28,556		-		28,556
Other		-		3,003		440		3,443
Total trading account debt securities, excluding derivatives	$	7,081	$	32,270	$	970	$	40,321
Equity securities	$	-	$	21,327	$	-	$	21,327
Mortgage servicing rights		-		-		150,906		150,906
Derivatives		-		17,966		-		17,966
Total assets measured at fair value on a recurring basis	$	3,848,796	$	13,877,139	$	153,058	$	17,878,993
Liabilities
Derivatives	$	-	$	(16,619)	$	-	$	(16,619)
Total liabilities measured at fair value on a recurring basis	$	-	$	(16,619)	$	-	$	(16,619)

Nonrecurring fair value measurements

Six months ended June 30, 2020
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans[1]		$	-	$	-	$	5,121	$	5,121	$	(872)
Other real estate owned[2]			-		-		17,581		17,581		(2,636)
Other foreclosed assets[2]			-		-		1,021		1,021		(152)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	23,723	$	23,723	$	(3,660)
[1]	Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.
[2]	Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

Six months ended June 30, 2019
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans[1]		$	-	$	-	$	41,793	$	41,793	$	(10,605)
Other real estate owned[2]			-		-		15,065		15,065		(2,937)
Other foreclosed assets[2]			-		-		1,220		1,220		(135)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	58,078	$	58,078	$	(13,677)
[1]	Relates mostly to certain impaired collateral dependent loans. The impairment was measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations. Costs to sell are excluded from the reported fair value amount.
[2]	Represents the fair value of foreclosed real estate and other collateral owned that were written down to their fair value. Costs to sell are excluded from the reported fair value amount.

Assets measured on recurring basis, unobservable input reconciliation

	Quarter ended June 30, 2020
		MBS		CMOs		Other
		classified		classified		securities
		as debt		as trading		classified
		securities		account		as trading		Mortgage
		available-		debt		account debt		servicing		Total
(In thousands)		for-sale		securities		securities		rights		assets
Balance at March 31, 2020		$	1,177	$	467	$	428	$	147,311	$	149,383
Gains (losses) included in earnings			-		(1)		(5)		(7,640)		(7,646)
Gains (losses) included in OCI			(1)		-		-		-		(1)
Additions			-		-		-		1,473		1,473
Settlements			(25)		(24)		-		-		(49)
Balance at June 30, 2020		$	1,151	$	442	$	423	$	141,144	$	143,160
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2020		$	-	$	(1)	$	2	$	(4,947)	$	(4,946)

	Six months ended June 30, 2020
		MBS				Other
		classified		CMOs		securities
		as investment		classified		classified
		securities		as trading		as trading		Mortgage
		available-		account		account		servicing		Total
(In thousands)		for-sale		securities		securities		rights		assets
Balance at January 1, 2020		$	1,182	$	530	$	440	$	150,906	$	153,058
Gains (losses) included in earnings			-		-		(17)		(12,869)		(12,886)
Gains (losses) included in OCI			(6)		-		-		-		(6)
Additions			-		2		-		3,107		3,109
Settlements			(25)		(90)		-		-		(115)
Balance at June 30, 2020		$	1,151	$	442	$	423	$	141,144	$	143,160
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2020		$	-	$	1	$	8	$	(7,386)	$	(7,377)

	Quarter ended June 30, 2019
		MBS						Other
		classified		CMOs				securities
		as investment		classified		MBS		classified
		securities		as trading		classified as		as trading		Mortgage
		available-		account		trading account		account		servicing		Total
(In thousands)		for-sale		securities		securities		securities		rights		assets
Balance at March 31, 2019		$	1,235	$	595	$	43	$	478	$	167,813	$	170,164
Gains (losses) included in earnings			-		1		(1)		(10)		(17,186)		(17,196)
Additions			-		50		25		-		2,394		2,469
Settlements			-		(28)		(41)		-		-		(69)
Balance at June 30, 2019		$	1,235	$	618	$	26	$	468	$	153,021	$	155,368
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2019		$	-	$	1	$	1	$	5	$	(13,671)	$	(13,664)

	Six months ended June 30, 2019
		MBS						Other
		classified		CMOs				securities
		as investment		classified		MBS		classified
		securities		as trading		classified as		as trading		Mortgage
		available-		account		trading account		account		servicing		Total
(In thousands)		for-sale		securities		securities		securities		rights		assets
Balance at January 1, 2019		$	1,233	$	611	$	43	$	485	$	169,777	$	172,149
Gains (losses) included in earnings			-		1		(1)		(17)		(21,011)		(21,028)
Gains (losses) included in OCI			2		-		-		-		-		2
Additions			-		64		25		-		4,255		4,344
Settlements			-		(58)		(41)		-		-		(99)
Balance at June 30, 2019		$	1,235	$	618	$	26	$	468	$	153,021	$	155,368
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2019		$	-	$	1	$	1	$	8	$	(14,418)	$	(14,408)

Gain (loss) included in earnings, measured on recurring basis

	Quarter ended June 30, 2020				Six months ended June 30, 2020
			Changes in unrealized				Changes in unrealized
	Total gains		gains (losses) relating to		Total gains		gains (losses) relating to
	(losses) included		assets still held at		(losses) included		assets still held at
(In thousands)	in earnings		reporting date		in earnings		reporting date
Mortgage banking activities	$	(7,640)	$	(4,947)	$	(12,869)	$	(7,386)
Trading account profit (loss)		(6)		1		(17)		9
Total	$	(7,646)	$	(4,946)	$	(12,886)	$	(7,377)

	Quarter ended June 30, 2019				Six months ended June 30, 2019
			Changes in unrealized				Changes in unrealized
	Total gains		gains (losses) relating to		Total gains		gains (losses) relating to
	(losses) included		assets still held at		(losses) included		assets still held at
(In thousands)	in earnings		reporting date		in earnings		reporting date
Mortgage banking activities	$	(17,186)	$	(13,671)	$	(21,011)	$	(14,418)
Trading account profit (loss)		(10)		7		(17)		10
Total	$	(17,196)	$	(13,664)	$	(21,028)	$	(14,408)

Fair value measurements, recurring and nonrecurring valuation techniques

			Fair value
			at June 30,
(In thousands)			2020		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	442		Discounted cash flow model	Weighted average life	1.4 years (0.7 - 1.5 years)
						Yield	3.8% (3.7% - 4.3%)
						Prepayment speed	18.3% (15.2% - 19.6%)
Other - trading		$	423		Discounted cash flow model	Weighted average life	3.8 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	141,144		Discounted cash flow model	Prepayment speed	6.7%(0.3% - 24.6%)
						Weighted average life	6.2 years (0.1 - 14.4 years)
						Discount rate	11.2% (9.5% - 14.7%)
Loans held-in-portfolio		$	5,121	[2]	External appraisal	Haircut applied on
						external appraisals	24.6% (10.0% - 40.1%)
Other real estate owned		$	11,853	[3]	External appraisal	Haircut applied on
						external appraisals	21.7% (5.0% - 30.0%)
[1]	Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.
[2]	Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.
[3]	Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.

			Fair value
			at June 30,
(In thousands)			2019		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	618		Discounted cash flow model	Weighted average life	1.7 years (1.1 - 1.9 years)
						Yield	4.0% (3.9% - 4.4%)
						Prepayment speed	18.5% (15.2% - 20.9%)
Other - trading		$	468		Discounted cash flow model	Weighted average life	5.2 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	153,021		Discounted cash flow model	Prepayment speed	6.1% (0.2% - 23.3%)
						Weighted average life	7.4 years (0.1 - 15.1 years)
						Discount rate	11.2% (9.5% - 14.7%)
Loans held-in-portfolio		$	38,161	[2]	External appraisal	Haircut applied on
						external appraisals	10.2% (10.0% - 35.0%)
Other real estate owned		$	12,596	[3]	External appraisal	Haircut applied on
						external appraisals	24.0% (10.0% - 35.0%)
[1]	Weighted average of significant unobservable inputs used to develop Level 3 fair value measurements were calculated by relative fair value.
[2]	Loans held-in-portfolio in which haircuts were not applied to external appraisals were excluded from this table.
[3]	Other real estate owned in which haircuts were not applied to external appraisals were excluded from this table.