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Fair value measurement (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

At June 30, 2019
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	5,130,255	$	5,361,409	$	-	$	10,491,664
Obligations of U.S. Government sponsored entities		-		245,947		-		245,947
Obligations of Puerto Rico, States and political subdivisions		-		6,878		-		6,878
Collateralized mortgage obligations - federal agencies		-		671,168		-		671,168
Mortgage-backed securities		-		5,317,426		1,235		5,318,661
Other		-		404		-		404
Total debt securities available-for-sale	$	5,130,255	$	11,603,232	$	1,235	$	16,734,722
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	3,279	$	2	$	-	$	3,281
Obligations of Puerto Rico, States and political subdivisions		-		133		-		133
Collateralized mortgage obligations		-		80		618		698
Mortgage-backed securities		-		28,015		26		28,041
Other		-		3,002		468		3,470
Total trading account debt securities, excluding derivatives	$	3,279	$	31,232	$	1,112	$	35,623
Equity securities	$	-	$	19,206	$	-	$	19,206
Mortgage servicing rights		-		-		153,021		153,021
Derivatives		-		14,792		-		14,792
Total assets measured at fair value on a recurring basis	$	5,133,534	$	11,668,462	$	155,368	$	16,957,364
Liabilities
Derivatives	$	-	$	(14,233)	$	-	$	(14,233)
Total liabilities measured at fair value on a recurring basis	$	-	$	(14,233)	$	-	$	(14,233)

At December 31, 2018
(In thousands)	Level 1		Level 2		Level 3		Total
RECURRING FAIR VALUE MEASUREMENTS
Assets
Debt securities available-for-sale:
U.S. Treasury securities	$	2,719,740	$	5,552,456	$	-	$	8,272,196
Obligations of U.S. Government sponsored entities		-		333,309		-		333,309
Obligations of Puerto Rico, States and political subdivisions		-		6,742		-		6,742
Collateralized mortgage obligations - federal agencies		-		728,671		-		728,671
Mortgage-backed securities		-		3,957,545		1,233		3,958,778
Other		-		488		-		488
Total debt securities available-for-sale	$	2,719,740	$	10,579,211	$	1,233	$	13,300,184
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	6,278	$	-	$	-	$	6,278
Obligations of Puerto Rico, States and political subdivisions		-		134		-		134
Collateralized mortgage obligations		-		48		611		659
Mortgage-backed securities		-		27,214		43		27,257
Other		-		2,974		485		3,459
Total trading account debt securities, excluding derivatives	$	6,278	$	30,370	$	1,139	$	37,787
Equity securities	$	-	$	13,296	$	-	$	13,296
Mortgage servicing rights		-		-		169,777		169,777
Derivatives		-		13,603		-		13,603
Total assets measured at fair value on a recurring basis	$	2,726,018	$	10,636,480	$	172,149	$	13,534,647
Liabilities
Derivatives	$	-	$	(12,320)	$	-	$	(12,320)
Total liabilities measured at fair value on a recurring basis	$	-	$	(12,320)	$	-	$	(12,320)

Nonrecurring fair value measurements

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, in accordance with the provisions of ASC Section 310-10-35. 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, 2018
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans[1]		$	-	$	-	$	84,075	$	84,075	$	(18,767)
Other real estate owned[2]			-		-		33,457		33,457		(6,967)
Other foreclosed assets[2]			-		-		2,597		2,597		(970)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	120,129	$	120,129	$	(26,704)
[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, in accordance with the provisions of ASC Section 310-10-35. 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, 2019
		MBS		CMOs				Other
		classified		classified				securities
		as debt		as trading		MBS		classified
		securities		account		classified as		as trading		Mortgage
		available-		debt		trading account		account debt		servicing		Total
(In thousands)		for-sale		securities		debt securities		securities		rights		assets
Balance at March 31, 2018		$	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)

	Quarter ended June 30, 2018
		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		Contingent		Total
(In thousands)		for-sale		securities		securities		securities		rights		assets		consideration [1]		liabilities
Balance at March 31, 2018		$	1,263	$	488	$	43	$	519	$	166,281	$	168,594	$	(170,970)	$	(170,970)
Gains (losses) included in earnings			-		6		-		(13)		(4,622)		(4,629)		-		-
Gains (losses) included in OCI			1		-		-		-		-		1		-		-
Additions			-		237		-		-		2,366		2,603		-		-
Settlements			-		(61)		-		-		-		(61)		170,970		170,970
Balance at June 30, 2018		$	1,264	$	670	$	43	$	506	$	164,025	$	166,508	$	-	$	-
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2018		$	-	$	6	$	-	$	6	$	-	$	12	$	-	$	-
[1]	Effective May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate the Corporation's loss share arrangement ahead of their contractual maturities. Refer to Note 10 for additional information.

	Six months ended June 30, 2018
		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		Contingent		Total
(In thousands)		for-sale		securities		securities		securities		rights		assets		consideration [1]		liabilities
Balance at January 1, 2018		$	1,288	$	529	$	43	$	529	$	168,031	$	170,420	$	(164,858)	$	(164,858)
Gains (losses) included in earnings			-		6		-		(23)		(8,929)		(8,946)		(6,112)		(6,112)
Gains (losses) included in OCI			2		-		-		-		-		2		-		-
Additions			-		253		-		-		4,923		5,176		-		-
Settlements			(26)		(118)		-		-		-		(144)		170,970		170,970
Balance at June 30, 2018		$	1,264	$	670	$	43	$	506	$	164,025	$	166,508	$	-	$	-
Changes in unrealized gains (losses) included in earnings relating to assets still held at June 30, 2018		$	-	$	6	$	-	$	11	$	-	$	17	$	-	$	-
[1]	Effective May 22, 2018, the Corporation entered into a Termination Agreement with the FDIC to terminate the Corporation's loss share arrangement ahead of their contractual maturities. Refer to Note 10 for additional information.

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

	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)

	Quarter ended June 30, 2018				Six months ended June 30, 2018
			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
FDIC loss share expense	$	-	$	-	$	(6,112)	$	-
Mortgage banking activities		(4,622)		-		(8,929)		-
Trading account profit (loss)		(7)		12		(17)		17
Total	$	(4,629)	$	12	$	(15,058)	$	17

Fair value measurements, recurring and nonrecurring valuation techniques

			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.

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- Definition

Tabular disclosure of input and valuation technique used to measure fair value and change in valuation approach and technique for each separate class of asset and liability measured on recurring and nonrecurring basis.

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Tabular disclosure of the amount of gains or losses for the period included in earnings or resulted in a change to net assets, have arisen from the use of significant unobservable inputs (level 3) to measure the fair value of assets, liabilities, and financial instruments classified in shareholders' equity.

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Tabular disclosure of assets and liabilities by class, including financial instruments measured at fair value that are classified in shareholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). Disclosures may include, but are not limited to: (a) the fair value measurements recorded and the reasons for the measurements and (b) the level within the fair value hierarchy in which the fair value measurements are categorized in their entirety (levels 1, 2, 3).

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Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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Tabular disclosure of assets and liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

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