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Fair value measurement
9 Months Ended
Sep. 30, 2024
Fair Value Disclosures  
Fair Value Measurement
Note 23 – Fair value measurement
ASC Subtopic
 
820-10 “Fair
 
Value
 
Measurements and
 
Disclosures” establishes
 
a fair
 
value hierarchy
 
that prioritizes
 
the inputs
 
to
valuation techniques
 
used to
 
measure fair
 
value into
 
three levels
 
in order
 
to increase
 
consistency and
 
comparability in
 
fair value
measurements and disclosures. The hierarchy is broken
 
down into three levels based on the reliability
 
of inputs as follows:
Level
 
1
- Unadjusted
 
quoted prices
 
in
 
active markets
 
for identical
 
assets
 
or liabilities
 
that
 
the Corporation
 
has the
 
ability to
access at the
 
measurement date. Valuation
 
on these instruments
 
does not necessitate a
 
significant degree of judgment
 
since
valuations are based on quoted prices that are
 
readily available in an active market.
Level 2
- Quoted
 
prices other
 
than those
 
included in
 
Level 1
 
that are
 
observable either
 
directly or
 
indirectly.
 
Level 2
 
inputs
include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in
markets
 
that
 
are
 
not
 
active,
 
or
 
other inputs
 
that
 
are
 
observable
 
or that
 
can
 
be
 
corroborated by
 
observable market
 
data
 
for
substantially the full term of the financial instrument.
Level 3
- Inputs are unobservable and significant
 
to the fair value measurement.
 
Unobservable inputs reflect the Corporation’s
own judgements about assumptions that market participants
 
would use in pricing the asset or liability.
The
 
Corporation
 
maximizes
 
the
 
use
 
of
 
observable
 
inputs
 
and
 
minimizes
 
the
 
use
 
of
 
unobservable
 
inputs
 
by
 
requiring
 
that
 
the
observable inputs be used when
 
available. Fair value is
 
based upon quoted market prices
 
when available. If listed prices
 
or quotes
are
 
not
 
available,
 
the
 
Corporation
 
employs
 
internally-developed
 
models
 
that
 
primarily
 
use
 
market-based
 
inputs
 
including
 
yield
curves, interest rates,
 
volatilities, and credit
 
curves, among others.
 
Valuation
 
adjustments are limited
 
to those necessary
 
to ensure
that the financial instrument’s
 
fair value is adequately representative of
 
the price that would
 
be received or paid
 
in the marketplace.
These adjustments include amounts that reflect counterparty credit quality,
 
the Corporation’s credit standing, constraints on liquidity
and unobservable parameters that are applied consistently.
 
There have been no changes in the
 
Corporation’s methodologies used
to estimate the fair value of assets and liabilities from
 
those disclosed in the 2023 Form 10-K.
The estimated fair
 
value may
 
be subjective in
 
nature and may
 
involve uncertainties and
 
matters of
 
significant judgment for
 
certain
financial instruments. Changes in the underlying assumptions
 
used in calculating fair value could significantly
 
affect the results.
Fair Value on a Recurring and Nonrecurring Basis
The following fair value hierarchy tables
 
present information about the Corporation’s assets
 
and liabilities measured at fair value
 
on
a recurring basis at September 30, 2024 and December
 
31, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2024
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
5,879,911
$
5,644,519
$
-
$
-
$
11,524,430
Collateralized mortgage obligations - federal
agencies
-
128,553
-
-
128,553
Mortgage-backed securities
-
5,530,582
558
-
5,531,140
Other
-
-
2,000
-
2,000
Total debt securities
 
available-for-sale
$
5,879,911
$
11,303,654
$
2,558
$
-
$
17,186,123
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
7,675
$
10
$
-
$
-
$
7,685
Obligations of Puerto Rico, States and political
subdivisions
-
58
-
-
58
Collateralized mortgage obligations
-
132
-
-
132
Mortgage-backed securities
-
22,723
84
-
22,807
Other
-
-
154
-
154
Total trading account
 
debt securities, excluding
derivatives
$
7,675
$
22,923
$
238
$
-
$
30,836
Equity securities
$
-
$
46,248
$
-
$
385
$
46,633
Mortgage servicing rights
-
-
108,827
-
108,827
Loans held-for-sale
-
5,509
-
-
5,509
Derivatives
 
-
25,941
-
-
25,941
Total assets measured
 
at fair value on a
recurring basis
$
5,887,586
$
11,404,275
$
111,623
$
385
$
17,403,869
Liabilities
Derivatives
$
-
$
(23,608)
$
-
$
-
$
(23,608)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(23,608)
$
-
$
-
$
(23,608)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
3,936,036
$
6,811,025
$
-
$
-
$
10,747,061
Collateralized mortgage obligations - federal
agencies
-
134,686
-
-
134,686
Mortgage-backed securities
-
5,844,180
606
-
5,844,786
Other
-
11
2,500
-
2,511
Total debt securities
 
available-for-sale
$
3,936,036
$
12,789,902
$
3,106
$
-
$
16,729,044
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
16,859
$
-
$
-
$
-
$
16,859
Obligations of Puerto Rico, States and political
subdivisions
-
71
-
-
71
Collateralized mortgage obligations
-
93
5
-
98
Mortgage-backed securities
-
14,261
112
-
14,373
Other
-
-
167
-
167
Total trading account
 
debt securities, excluding
derivatives
$
16,859
$
14,425
$
284
$
-
$
31,568
Equity securities
$
-
$
37,965
$
-
$
310
$
38,275
Mortgage servicing rights
-
-
118,109
-
118,109
Loans held-for-sale
-
3,239
-
-
3,239
Derivatives
 
-
24,419
-
-
24,419
Total assets measured
 
at fair value on a
recurring basis
$
3,952,895
$
12,869,950
$
121,499
$
310
$
16,944,654
Liabilities
 
 
 
Derivatives
$
-
$
(21,103)
$
-
$
-
$
(21,103)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(21,103)
$
-
$
-
$
(21,103)
Beginning in the first quarter of 2023, the Corporation has elected the fair value option for
 
newly originated mortgage loans held-for-
sale. This election better aligns with the management
 
of the portfolio from a business perspective.
 
Loans held-for-sale measured at fair value
 
Loans held-for-sale measured at fair value were priced
 
based on secondary market prices. These loans
 
are classified as Level 2.
The
 
following
 
tables summarize
 
the difference
 
between the
 
aggregate fair
 
value
 
and the
 
aggregate unpaid
 
principal
 
balance
 
for
mortgage loans originated as held-for-sale measured
 
at fair value as of September 30, 2024 and
 
December 31, 2023.
 
 
 
 
 
 
(In thousands)
September 30, 2024
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
5,509
$
5,507
$
2
 
 
 
 
 
 
(In thousands)
December 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
3,239
$
3,202
$
37
No
 
loans held-for-sale were 90 or more days past
 
due or on nonaccrual status as of September 30,
 
2024 and December 31, 2023.
For the nine months ended September 30, 2024, changes in the fair value of mortgage loans held-for-sale for which the Corporation
elected the fair value option, were not considered material.
The fair value information included in the following tables is
 
not as of period end, but as of
 
the date that the fair value measurement
was
 
recorded
 
during
 
the
 
quarters
 
and
 
nine
 
months
 
ended
 
September
 
30,
 
2024
 
and
 
2023
 
and
 
excludes
 
nonrecurring fair
 
value
measurements of assets no longer outstanding as of
 
the reporting date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2024
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
4,166
$
4,166
$
(654)
Other real estate owned
[2]
-
-
5,749
5,749
(1,889)
Other foreclosed assets
[2]
-
-
174
174
(38)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
10,089
$
10,089
$
(2,581)
[1] Relates mainly 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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
9,113
$
9,113
$
(3,087)
Other real estate owned
[2]
-
-
5,457
5,457
(1,012)
Other foreclosed assets
[2]
-
-
44
44
(14)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
14,614
$
14,614
$
(4,113)
[1] Relates mainly 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.
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters
 
and nine months ended September 30, 2024 and
 
2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 30, 2024
MBS
Other
MBS
Other
classified
securities
classified
securities
as debt
classified as
 
as trading
classified
securities
 
debt securities
account
as trading
Mortgage
available-
available-
 
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
rights
assets
Balance at June 30, 2024
$
581
$
2,000
$
84
$
158
$
113,386
$
116,209
Gains (losses) included in earnings
-
-
-
(4)
(4,896)
(4,900)
Gains (losses) included in OCI
2
-
-
-
-
2
Additions
-
-
-
-
337
337
Settlements
(25)
-
-
-
-
(25)
Balance at September 30, 2024
$
558
$
2,000
$
84
$
154
$
108,827
$
111,623
Changes in unrealized gains (losses) included in
earnings relating to assets still held at September
30, 2024
$
-
$
-
$
-
$
6
$
(2,577)
$
(2,571)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2024
MBS
Other
MBS
Other
classified
securities
CMOs
classified
securities
as debt
classified as
 
classified
as trading
classified
securities
 
debt securities
as trading
account
as trading
Mortgage
available-
available-
account debt
 
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at January 1, 2024
$
606
$
2,500
$
5
$
112
$
167
$
118,109
$
121,499
Gains (losses) included in earnings
-
(500)
-
-
(13)
(10,280)
(10,793)
Gains (losses) included in OCI
2
-
-
-
-
-
2
Additions
-
-
-
-
-
998
998
Settlements
(50)
-
(5)
(28)
-
-
(83)
Balance at September 30, 2024
$
558
$
2,000
$
-
$
84
$
154
$
108,827
$
111,623
Changes in unrealized gains (losses) included
in earnings relating to assets still held at
September 30, 2024
$
-
$
-
$
-
$
-
$
18
$
(3,279)
$
(3,261)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended September 30, 2023
MBS
Other
Other
classified
securities
CMOs
MBS
securities
as debt
classified as
classified
classified
classified
securities
debt securities
as trading
as trading
as trading
Mortgage
available-
available-
account debt
account debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at June 30, 2023
$
655
$
1,000
$
56
$
163
$
191
$
121,249
$
123,314
Gains (losses) included in earnings
-
-
-
-
(3)
(2,793)
(2,796)
Gains (losses) included in OCI
(2)
-
-
-
-
-
(2)
Additions
-
-
-
-
-
574
574
Settlements
-
-
(46)
(26)
-
-
(72)
Balance at September 30, 2023
$
653
$
1,000
$
10
$
137
$
188
$
119,030
$
121,018
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at September 30, 2023
$
-
$
-
$
-
$
-
$
4
$
(381)
$
(377)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2023
MBS
Other
Other
classified
securities
CMOs
securities
as debt
classified as
classified
MBS
 
classified
securities
debt securities
as trading
classified as
as trading
Mortgage
available-
available-
account debt
trading account
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at January 1,
 
2023
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(2)
(19)
(10,386)
(10,407)
Gains (losses) included in OCI
(8)
-
-
-
-
-
(8)
Additions
-
-
4
-
-
1,814
1,818
Sales
-
-
-
-
-
(1,269)
(1,269)
Settlements
(50)
-
(107)
(76)
-
521
288
Balance at September 30, 2023
$
653
$
1,000
$
10
$
137
$
188
$
119,030
$
121,018
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at September 30, 2023
$
-
$
-
$
-
$
(1)
$
22
$
(1,828)
$
(1,807)
Gains and losses
 
(realized and unrealized)
 
included in earnings
 
for the
 
quarters
 
and nine months
 
ended September 30,
 
2024 and
2023 for
 
Level 3
 
assets and
 
liabilities included
 
in the
 
previous tables
 
are reported
 
in the
 
consolidated statement
 
of operations
 
as
follows:
 
 
 
 
 
 
 
 
 
Quarter ended September 30, 2024
Nine months ended September 30, 2024
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
$
(4,896)
$
(2,577)
$
(10,280)
$
(3,279)
Trading account profit (loss)
(4)
6
(13)
18
Provision for credit losses
-
-
(500)
-
Total
 
$
(4,900)
$
(2,571)
$
(10,793)
$
(3,261)
 
 
 
 
 
 
 
Quarter ended September 30, 2023
Nine months ended September 30, 2023
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
$
(2,793)
$
(381)
$
(10,386)
$
(1,828)
Trading account profit (loss)
(3)
4
(21)
21
Total
 
$
(2,796)
$
(377)
$
(10,407)
$
(1,807)
The following
 
tables include
 
quantitative information
 
about significant
 
unobservable inputs
 
used to
 
derive the
 
fair value
 
of Level
 
3
instruments, excluding those instruments
 
for which the
 
unobservable inputs were not
 
developed by the
 
Corporation such as
 
prices
of prior transactions and/or unadjusted third-party pricing
 
sources at September 30, 2024 and 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value at
 
September 30,
(In thousands)
2024
Valuation technique
Unobservable inputs
Weighted average (range) [1]
Other - trading
$
154
Discounted cash flow model
Weighted average life
2.3
 
years
Yield
12
.0%
Prepayment speed
10.8
%
Loans held-in-portfolio
$
4,166
[2]
External appraisal
Haircut applied on
external appraisals
7.5
% (
5.0
% -
10.0
%)
Other real estate owned
$
16
[3]
External appraisal
Haircut applied on
external appraisals
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.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value at
 
September 30,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
10
Discounted cash flow model
Weighted average life
0.2
 
years (
0.2
 
-
0.3
 
years)
Yield
4.9
%
Prepayment speed
7.3
%
Other - trading
$
188
Discounted cash flow model
Weighted average life
2.5
 
years
Yield
12
.0%
Prepayment speed
10.8
%
Loans held-in-portfolio
$
9,044
[2]
External appraisal
Haircut applied on
external appraisals
7.2
% (
5
.0% -
10
.0%)
Other real estate owned
$
325
[3]
External appraisal
Haircut applied on
external appraisals
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.