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Fair value measurement (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Disclosures

Assets and Liabilities Measured at Fair Value on a Recurring Basis

At September 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	$	3,999,320	$	7,648,271	$	-	$	11,647,591
Obligations of U.S. Government sponsored entities		-		60,371		-		60,371
Collateralized mortgage obligations - federal agencies		-		450,306		-		450,306
Mortgage-backed securities		-		9,018,190		1,124		9,019,314
Other		-		257		-		257
Total debt securities available-for-sale	$	3,999,320	$	17,177,395	$	1,124	$	21,177,839
Trading account debt securities, excluding derivatives:
U.S. Treasury securities	$	4,106	$	-	$	-	$	4,106
Obligations of Puerto Rico, States and political subdivisions		-		105		-		105
Collateralized mortgage obligations		-		74		410		484
Mortgage-backed securities		-		24,944		-		24,944
Other		-		3,001		413		3,414
Total trading account debt securities, excluding derivatives	$	4,106	$	28,124	$	823	$	33,053
Equity securities	$	-	$	26,718	$	-	$	26,718
Mortgage servicing rights		-		-		123,552		123,552
Derivatives		-		18,080		-		18,080
Total assets measured at fair value on a recurring basis	$	4,003,426	$	17,250,317	$	125,499	$	21,379,242
Liabilities
Derivatives	$	-	$	(15,346)	$	-	$	(15,346)
Total liabilities measured at fair value on a recurring basis	$	-	$	(15,346)	$	-	$	(15,346)

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

Nine months ended September 30, 2020
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans[1]		$	-	$	-	$	96,740	$	96,740	$	(20,495)
Loans held-for-sale[2]			-		-		4,070		4,070		(2,038)
Other real estate owned[3]			-		-		19,475		19,475		(3,025)
Other foreclosed assets[3]			-		-		444		444		(701)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	120,729	$	120,729	$	(26,259)
[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]	Relates to a quarterly valuation on loans held-for-sale. Costs to sell are excluded from the reported fair value amount.
[3]	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, 2019
(In thousands)		Level 1		Level 2		Level 3		Total
NONRECURRING FAIR VALUE MEASUREMENTS
Assets											Write-downs
Loans[1]		$	-	$	-	$	65,922	$	65,922	$	(10,761)
Other real estate owned[2]			-		-		17,942		17,942		(3,486)
Other foreclosed assets[2]			-		-		1,221		1,221		(153)
Long-lived assets held-for-sale[3]			-		-		2,500		2,500		(2,591)
Total assets measured at fair value on a nonrecurring basis		$	-	$	-	$	87,585	$	87,585	$	(16,991)
[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.

Assets measured on recurring basis, unobservable input reconciliation

	Quarter ended September 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 June 30, 2020		$	1,151	$	442	$	423	$	141,144	$	143,160
Gains (losses) included in earnings			-		-		(10)		(20,491)		(20,501)
Gains (losses) included in OCI			(2)		-		-		-		(2)
Additions			-		2		-		2,899		2,901
Settlements			(25)		(34)		-		-		(59)
Balance at September 30, 2020		$	1,124	$	410	$	413	$	123,552	$	125,499
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2020		$	-	$	-	$	-	$	(7,892)	$	(7,892)

	Nine months ended September 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			-		-		(27)		(33,360)		(33,387)
Gains (losses) included in OCI			(8)		-		-		-		(8)
Additions			-		4		-		6,006		6,010
Settlements			(50)		(124)		-		-		(174)
Balance at September 30, 2020		$	1,124	$	410	$	413	$	123,552	$	125,499
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2020		$	-	$	-	$	13	$	(15,278)	$	(15,265)

	Quarter ended September 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 June 30, 2019		$	1,235	$	618	$	26	$	468	$	153,021	$	155,368
Gains (losses) included in earnings			-		(1)		-		(12)		(4,842)		(4,855)
Gains (losses) included in OCI			(1)		-		-		-		-		(1)
Additions			-		1		-		-		2,473		2,474
Settlements			(25)		(61)		-		-		-		(86)
Balance at September 30, 2019		$	1,209	$	557	$	26	$	456	$	150,652	$	152,900
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2019		$	-	$	1	$	-	$	5	$	(1,575)	$	(1,569)

	Nine months ended September 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)		(29)		(25,853)		(25,883)
Gains (losses) included in OCI			1		-		-		-		-		1
Additions			-		65		25		-		6,728		6,818
Settlements			(25)		(119)		(41)		-		-		(185)
Balance at September 30, 2019		$	1,209	$	557	$	26	$	456	$	150,652	$	152,900
Changes in unrealized gains (losses) included in earnings relating to assets still held at September 30, 2019		$	-	$	-	$	1	$	13	$	(15,993)	$	(15,979)

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

	Quarter ended September 30, 2020				Nine months ended September 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	$	(20,491)	$	(7,892)	$	(33,360)	$	(15,278)
Trading account profit (loss)		(10)		-		(27)		13
Total	$	(20,501)	$	(7,892)	$	(33,387)	$	(15,265)

	Quarter ended September 30, 2019				Nine months ended September 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	$	(4,842)	$	(1,575)	$	(25,853)	$	(15,993)
Trading account profit (loss)		(13)		6		(30)		14
Total	$	(4,855)	$	(1,569)	$	(25,883)	$	(15,979)

Fair value measurements, recurring and nonrecurring valuation techniques

			Fair value
			at September 30,
(In thousands)			2020		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	410		Discounted cash flow model	Weighted average life	1.3 years (0.6 - 1.5 years)
						Yield	3.7% (3.6% - 4.1%)
						Prepayment speed	17.7% (13.8% - 18.4%)
Other - trading		$	413		Discounted cash flow model	Weighted average life	3.8 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	123,552		Discounted cash flow model	Prepayment speed	6.9%(0.2% - 22.1%)
						Weighted average life	6.1 years (0.1 - 12.3 years)
						Discount rate	11.2% (9.5% - 14.7%)
Loans held-in-portfolio		$	96,740	[2]	External appraisal	Haircut applied on
						external appraisals	23.2% (21.0% - 40.0%)
Other real estate owned		$	13,826	[3]	External appraisal	Haircut applied on
						external appraisals	21.5% (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 September 30,
(In thousands)			2019		Valuation technique	Unobservable inputs	Weighted average (range) [1]
CMO's - trading		$	557		Discounted cash flow model	Weighted average life	1.7 years (1.4 - 1.8 years)
						Yield	4.0% (3.9% - 4.4%)
						Prepayment speed	18.5% (15.2% - 20.7%)
Other - trading		$	456		Discounted cash flow model	Weighted average life	5.2 years
						Yield	12.0%
						Prepayment speed	10.8%
Mortgage servicing rights		$	150,652		Discounted cash flow model	Prepayment speed	6.8% (0.2% - 19.9%)
						Weighted average life	6.2 years (0.1 - 13.9 years)
						Discount rate	11.2% (9.5% - 14.7%)
Loans held-in-portfolio		$	62,442	[2]	External appraisal	Haircut applied on
						external appraisals	10.3% (10.0% - 21.0%)
Other real estate owned		$	15,003	[3]	External appraisal	Haircut applied on
						external appraisals	23.5% (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 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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