Fair value measurement

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures

Fair Value Measurement

Note 27 – 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. 

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 December 31, 2024 and 2023:

At December 31, 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

$

7,512,171

$

5,482,939

$

-

$

-

$

12,995,110

Collateralized mortgage obligations - federal

agencies

-

120,284

-

-

120,284

Mortgage-backed securities

-

5,127,775

484

-

5,128,259

Other

-

-

2,250

-

2,250

Total debt securities available-for-sale

$

7,512,171

$

10,730,998

$

2,734

$

-

$

18,245,903

Trading account debt securities, excluding

derivatives:

U.S. Treasury securities

$

2,814

$

10

$

-

$

-

$

2,824

Obligations of Puerto Rico, States and political

subdivisions

-

55

-

-

55

Collateralized mortgage obligations

-

655

-

-

655

Mortgage-backed securities

-

29,032

84

-

29,116

Other

-

-

133

-

133

Total trading account debt securities, excluding

derivatives

$

2,814

$

29,752

$

217

$

-

$

32,783

Equity securities

$

-

$

45,664

$

-

$

381

$

46,045

Mortgage servicing rights

-

-

108,103

-

108,103

Loans held-for-sale

-

5,423

-

-

5,423

Derivatives 

-

26,023

-

-

26,023

Total assets measured at fair value on a

recurring basis

$

7,514,985

$

10,837,860

$

111,054

$

381

$

18,464,280

Liabilities

Derivatives

$

-

$

(22,832)

$

-

$

-

$

(22,832)

Total liabilities measured at fair value on a

recurring basis

$

-

$

(22,832)

$

-

$

-

$

(22,832)

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 December 31, 2024 and December 31, 2023.

(In thousands)

December 31, 2024

Aggregate Unpaid

Fair Value

Principal Balance

Difference

Loans held for sale

$

5,423

$

5,436

$

(13)

(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 December 31, 2024 and December 31, 2023.

For the year ended December 31, 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 years ended December 31, 2024, 2023 and 2022 and excludes nonrecurring fair value measurements of

assets no longer outstanding as of the reporting date.

Year ended December 31, 2024

(In thousands)

Level 1

Level 2

Level 3

Total

NONRECURRING FAIR VALUE MEASUREMENTS

Assets 

Write-downs

Loans

[1]

$

-

$

-

$

6,808

$

6,808

$

(939)

Other real estate owned

[2]

-

-

6,050

6,050

(1,934)

Other foreclosed assets

[2]

-

-

134

134

(55)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

12,992

$

12,992

$

(2,928)

[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.

Year ended December 31, 2023

(In thousands)

Level 1

Level 2

Level 3

Total

NONRECURRING FAIR VALUE MEASUREMENTS

Assets 

Write-downs

Loans

[1]

$

-

$

-

$

10,091

$

10,091

$

(3,157)

Other real estate owned

[2]

-

-

6,560

6,560

(1,516)

Other foreclosed assets

[2]

-

-

102

102

(28)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

16,753

$

16,753

$

(4,701)

[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.

Year ended December 31, 2022

(In thousands)

Level 1

Level 2

Level 3

Total

NONRECURRING FAIR VALUE MEASUREMENTS

Assets 

Write-downs

Loans

[1]

$

-

$

-

$

11,215

$

11,215

$

(2,067)

Other real estate owned

[2]

-

-

3,992

3,992

(1,026)

Other foreclosed assets

[2]

-

-

13

13

(1)

Long-lived assets held-for-sale

[3]

-

-

1,178

1,178

(2,155)

Total assets measured at fair value on a nonrecurring basis

$

-

$

-

$

16,398

$

16,398

$

(5,249)

[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.

[3] Represents the fair value of long-lived assets held-for-sale that were written down to their fair value.

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years

ended December 31, 2024, 2023, and 2022.

Year ended December 31, 2024

MBS

Other

classified

classified

CMOs

MBS 

Other

as debt

as debt

classified

classified

securities

securities

securities

as trading

as trading

classified as

Mortgage

available-

available-

account debt

account debt

trading account

servicing

Total

(In thousands)

for-sale

for-sale

securities

securities

debt securities

rights

assets

Balance at January 1, 2024

$

606

$

2,500

$

5

$

112

$

167

$

118,109

$

121,499

Gains (losses) included in earnings

-

(500)

-

-

(34)

(11,370)

(11,904)

Gains (losses) included in OCI

3

-

-

-

-

-

3

Additions

-

-

-

-

-

1,364

1,364

Sales

-

250

-

-

-

-

250

Settlements

(125)

-

(5)

(28)

-

-

(158)

Balance at December 31, 2024

$

484

$

2,250

$

-

$

84

$

133

$

108,103

$

111,054

Changes in unrealized gains (losses)

included in earnings relating to assets

still held at December 31, 2024

$

-

$

-

$

-

$

1

$

7

$

(2,120)

$

(2,112)

Year ended December 31, 2023

MBS

Other

Other

classified

classified

CMOs

MBS 

securities

as debt

as debt

classified

classified

classified

securities

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 January 1, 2023

$

711

$

1,000

$

113

$

215

$

207

$

128,350

$

130,596

Gains (losses) included in earnings

-

-

-

(2)

(40)

(11,589)

(11,631)

Gains (losses) included in OCI

(5)

-

-

-

-

-

(5)

Additions

-

1,500

4

-

-

2,097

3,601

Sales

-

-

-

-

-

(1,269)

(1,269)

Settlements

(100)

-

(112)

(101)

-

520

207

Balance at December 31, 2023

$

606

$

2,500

$

5

$

112

$

167

$

118,109

$

121,499

Changes in unrealized gains (losses)

included in earnings relating to assets

still held at December 31, 2023

$

-

$

-

$

-

$

(1)

$

18

$

(529)

$

(512)

Year ended December 31, 2022

MBS

Other

Other

classified

classified

CMOs

MBS 

securities

as debt

as debt

classified

classified as

classified

securities

securities

as trading

trading

as trading

Mortgage

available-

available-

account debt

account debt 

account debt 

servicing

Total

Contingent

Total

(In thousands)

for-sale

for-sale

securities

securities

securities

rights

assets

Consideration

liabilities

Balance at January 1, 2022

$

826

$

-

$

198

$

-

$

280

$

121,570

$

122,874

$

(9,241)

$

(9,241)

Gains (losses) included in

earnings

-

-

(2)

4

(73)

166

95

9,241

9,241

Gains (losses) included in OCI

(15)

-

-

-

-

-

(15)

-

-

Additions

-

1,000

5

211

-

6,614

7,830

-

-

Settlements

(100)

-

(88)

-

-

-

(188)

-

-

Balance at December 31, 2022

$

711

$

1,000

$

113

$

215

$

207

$

128,350

$

130,596

$

-

$

-

Changes in unrealized gains

(losses) included in earnings

relating to assets still held at

December 31, 2022

$

-

$

-

$

(2)

$

4

$

(23)

$

11,964

$

11,943

$

-

$

-

Gains and losses (realized and unrealized) included in earnings for the years ended December 31, 2024, 2023, and 2022 for Level

3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:

2024

2023

2022

Total

Changes in

unrealized

Total

Changes in

unrealized

Total

Changes in

unrealized

gains (losses)

gains (losses) 

gains (losses)

gains (losses) 

gains (losses)

gains (losses) 

included

relating to assets still

included

relating to assets still

included

relating to assets still 

(In thousands)

in earnings

held at reporting date

in earnings

held at reporting date

in earnings

held at reporting date

Mortgage banking activities

$

(11,370)

$

(2,120)

$

(11,589)

$

(529)

$

166

$

11,964

Trading account (loss) profit 

(34)

8

(42)

17

(71)

(21)

Other operating income

-

-

-

-

9,241

-

Provision for credit losses

(500)

-

-

-

-

-

Total 

$

(11,904)

$

(2,112)

$

(11,631)

$

(512)

$

9,336

$

11,943

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 December 31, 2024 and 2023.

Fair value at

 December 31,

(In thousands)

2024

Valuation technique

Unobservable inputs

Weighted average (range) [1]

Other - trading

$

133

Discounted cash flow model

Weighted average life

2

 years

Yield

12

.0%

Prepayment speed

10.8

%

Loans held-in-portfolio

$

6,808

[2]

External appraisal

Haircut applied on

external appraisals

6.6

% (

5.0

% -

10.0

%)

Other real estate owned

$

53

[3]

External appraisal

Haircut applied on

external appraisals

60.1

% (

35.0

% -

65.6

%)

[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

 December 31,

(In thousands)

2023

Valuation technique

Unobservable inputs

Weighted average (range) [1]

CMO's - trading

$

5

Discounted cash flow model

Weighted average life

0.2

 years (

0.1

 -

0.2

 years)

Yield

4.9

%

Prepayment speed

14.5

%

Other - trading

$

167

Discounted cash flow model

Weighted average life

2.3

 years

Yield

12

.0%

Prepayment speed

10.8

%

Loans held-in-portfolio

$

10,023

[2]

External appraisal

Haircut applied on

external appraisals

6.9

% (

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.

The significant unobservable inputs used in the fair value measurement of the Corporation’s collateralized mortgage obligations and

interest-only collateralized mortgage obligation (reported as “other”), which are classified in the “trading” category, are yield,

constant prepayment rate, and weighted average life. Significant increases (decreases) in any of those inputs in isolation would

result in significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the constant

prepayment rate will generate a directionally opposite change in the weighted average life. For example, as the average life is

reduced by a higher constant prepayment rate, a lower yield will be realized, and when there is a reduction in the constant

prepayment rate, the average life of these collateralized mortgage obligations will extend, thus resulting in a higher yield. The

significant unobservable inputs used in the fair value measurement of the Corporation’s mortgage servicing rights are constant

prepayment rates and discount rates. Increases in interest rates may result in lower prepayments. Discount rates vary according to

products and / or portfolios depending on the perceived risk. Increases in discount rates result in a lower fair value measurement.

Following is a description of the Corporation’s valuation methodologies used for assets and liabilities measured at fair value. The

disclosure requirements exclude certain financial instruments and all non-financial instruments. Accordingly, the aggregate fair value

amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.

Trading account debt securities and debt securities available-for-sale 

●

 U.S. Treasury securities: The fair value of U.S. Treasury notes is based on yields that are interpolated from the constant

maturity treasury curve. These securities are classified as Level 2. U.S. Treasury bills are classified as Level 1 given the

high volume of trades and pricing based on those trades. 

●

 Obligations of U.S. Government sponsored entities: The Obligations of U.S. Government sponsored entities include U.S.

agency securities, which fair value is based on an active exchange market and on quoted market prices for similar

securities. The U.S. agency securities are classified as Level 2. 

●

 Obligations of Puerto Rico, States and political subdivisions: Obligations of Puerto Rico, States and political subdivisions

include municipal bonds. The bonds are segregated and the like characteristics divided into specific sectors. Market

inputs used in the evaluation process include all or some of the following: trades, bid price or spread, two sided markets,

quotes, benchmark curves including but not limited to Treasury benchmarks and swap curves, market data feeds such as

those obtained from municipal market sources, discount and capital rates, and trustee reports. The municipal bonds are

classified as Level 2.

●

 Mortgage-backed securities: Certain agency mortgage-backed securities (“MBS”) are priced based on a bond’s theoretical

value derived from similar bonds defined by credit quality and market sector. Their fair value incorporates an option

adjusted spread. The agency MBS are classified as Level 2. Other agency MBS such as GNMA Puerto Rico Serials are

priced using an internally-prepared pricing matrix with quoted prices from local brokers dealers. These particular MBS are

classified as Level 3.

●

 Collateralized mortgage obligations: Agency collateralized mortgage obligations (“CMOs”) are priced based on a bond’s

theoretical value derived from similar bonds defined by credit quality and market sector and for which fair value

incorporates an option adjusted spread. The option adjusted spread model includes prepayment and volatility

assumptions, ratings (whole loans collateral) and spread adjustments. These CMOs are classified as Level 2. Other

CMOs, due to their limited liquidity, are classified as Level 3 due to the insufficiency of inputs such as executed trades,

credit information and cash flows. 

●

 Corporate securities (included as “other” in the “available-for-sale” category): Given that the quoted prices are for similar

instruments, these securities are classified as Level 2. 

●

 Corporate securities and interest-only strips (included as “other” in the “trading account debt securities” category): For

corporate securities, quoted prices for these security types are obtained from broker dealers. Given that the quoted prices

are for similar instruments or do not trade in highly liquid markets, these securities are classified as Level 2. Given that the

fair value was estimated based on a discounted cash flow model using unobservable inputs, interest-only strips are

classified as Level 3. 

Equity securities

Equity securities are comprised principally of shares in closed-ended and open-ended mutual funds and other equity securities.

Closed-end funds are traded on the secondary market at the shares’ market value. Open-ended funds are considered to be liquid,

as investors can sell their shares continually to the fund and are priced at NAV. Mutual funds are classified as Level 2. Other equity

securities that do not trade in highly liquid markets are also classified as Level 2, except for one equity security that do not have

readily determinable fair value and is under an investment company is measured at NAV.

Mortgage servicing rights 

Mortgage servicing rights (“MSRs”) do not trade in an active market with readily observable prices. MSRs are priced using a

discounted cash flow model valuation performed by a third party. The discounted cash flow model incorporates assumptions that

market participants would use in estimating future net servicing income, including portfolio characteristics, prepayments

assumptions, discount rates, delinquency and foreclosure rates, late charges, other ancillary revenues, cost to service and other

economic factors. Prepayment speeds are adjusted for the loans’ characteristics and portfolio behavior. Due to the unobservable

nature of certain valuation inputs, the MSRs are classified as Level 3. 

Derivatives 

Interest rate caps and indexed options are traded in over-the-counter active markets. These derivatives are indexed to an

observable interest rate benchmark, such as LIBOR or equity indexes, and are priced using an income approach based on present

value and option pricing models using observable inputs. Other derivatives are liquid and have quoted prices, such as forward

contracts or “to be announced securities” (“TBAs”). All of these derivatives are classified as Level 2. The non-performance risk is

determined using internally-developed models that consider the collateral held, the remaining term, and the creditworthiness of the

entity that bears the risk, and uses available public data or internally-developed data related to current spreads that denote their

probability of default.

Contingent consideration liability

The fair value of the contingent consideration, which was related to earnout payments that could be payable over a three-year

period to K2 Capital Group LLC’s (“K2”) related to an equipment leasing and financing business acquired by the Corporation during

the year 2022, was calculated based on a discounted cash flow technique using the probability-weighted average from likely

scenarios. This contingent consideration is classified as Level 3.

Loans held-in-portfolio that are collateral dependent

The impairment is 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 and which could be subject to internal adjustments.

These collateral dependent loans are classified as Level 3. 

Loans measured at fair value or measured at the lower of cost or market

Loans held-for-sale measured at fair value or measured at the lower of cost or market were priced based on secondary market

prices. These loans are classified as Level 2. 

Other real estate owned and other foreclosed assets 

Other real estate owned includes real estate properties securing mortgage, consumer, and commercial loans. Other foreclosed

assets include primarily automobiles securing auto loans. The fair value of foreclosed assets may be determined using an external

appraisal, broker price opinion, or an internal valuation. These foreclosed assets are classified as Level 3 since they are subject to

internal adjustments.

ROU assets and leasehold improvements

The impairment was measured based on the sublease rental value of the branches that were subject to the strategic realignment of

PB’s New York Metro Branch network. These ROU assets and leasehold improvements are classified as Level 3.

Long-lived assets held-for-sale

The Corporation evaluates for impairment its long-lived assets, whenever events or changes in circumstances indicate that the

carrying amount of an asset may not be recoverable and records a write down for the difference between the carrying amount and

the fair value less cost to sell. These long-lived assets held-for-sale are classified as Level 3.

Trademark

The write-down on impairment of a trademark was based on the discontinuance of origination thru e-loan platform. This trademark is

classified as Level 3.