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FAIR VALUE (Tables) | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Assets and Liabilities Measured at Fair Value on Recurring Basis |
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| As of September 30, 2018 |  | As of December 31, 2017
| Fair Value Measurements Using |  | Fair Value Measurements Using
(In thousands) | Level 1 |  | Level 2 |  | Level 3 |  | Assets/Liabilities at Fair Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Assets/Liabilities at Fair Value
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities (1) | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | 418 |  | $ | - |  | $ | - |  | $ | 418
U.S. Treasury Securities |  | 7,426 |  |  | - |  |  | - |  |  | 7,426 |  |  | 7,401 |  |  | - |  |  | - |  |  | 7,401
Noncallable U.S. agency debt securities |  | - |  |  | 341,720 |  |  | - |  |  | 341,720 |  |  | - |  |  | 361,971 |  |  | - |  |  | 361,971
Callable U.S. agency debt securities and MBS |  | - |  |  | 1,640,064 |  |  | - |  |  | 1,640,064 |  |  | - |  |  | 1,497,253 |  |  | - |  |  | 1,497,253
Puerto Rico government obligations |  | - |  |  | 4,142 |  |  | 2,798 |  |  | 6,940 |  |  | - |  |  | 4,118 |  |  | 2,695 |  |  | 6,813
Private label MBS |  | - |  |  | - |  |  | 14,571 |  |  | 14,571 |  |  | - |  |  | - |  |  | 17,060 |  |  | 17,060
Other investments |  | - |  |  | - |  |  | 500 |  |  | 500 |  |  | - |  |  | - |  |  | 100 |  |  | 100
Equity securities (1) |  | 411 |  |  | - |  |  | - |  |  | 411 |  |  | - |  |  | - |  |  | - |  |  | -
Derivatives, included in assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Purchased interest rate cap agreements |  | - |  |  | 815 |  |  | - |  |  | 815 |  |  | - |  |  | 305 |  |  | - |  |  | 305
Forward contracts |  | - |  |  | 116 |  |  | - |  |  | 116 |  |  | - |  |  | 7 |  |  | - |  |  | 7
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives, included in liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Written interest rate cap agreements |  | - |  |  | 815 |  |  | - |  |  | 815 |  |  | - |  |  | 305 |  |  | - |  |  | 305
Forward contracts |  | - |  |  | 20 |  |  | - |  |  | 20 |  |  | - |  |  | 19 |  |  | - |  |  | 19
(1) As of January 1, 2018, the Corporation adopted ASU 2016-01, resulting in the reclassification of equity securities from available-for-sale investment securities to other investment securities. As of December 31, 2017, equity securities had a net unrealized loss of $6 thousand.
Fair Value of Assets and Liabilities Measured on Recurring Basis | The table below presents a reconciliation of the beginning and ending balances of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters and nine-month periods ended September 30, 2018 and 2017.
|  | Quarter Ended September 30,
|  | 2018 |  | 2017
Level 3 Instruments Only | Securities |  | Securities
(In thousands) | Available For Sale(1) |  | Available For Sale(1)
Beginning balance | $ | 17,829 |  | $ | 19,771
Total gains (realized/unrealized): |  |  |  |  |
Included in other comprehensive income |  | 35 |  |  | 1,754
Purchases |  | 500 |  |  | -
Principal repayments and amortization |  | (495) |  |  | (1,186)
Ending balance | $ | 17,869 |  | $ | 20,339
(1) | Amounts mostly related to private label MBS.
|  | Nine-Month Period Ended September 30,
|  | 2018 |  | 2017
Level 3 Instruments Only | Securities |  | Securities
(In thousands) | Available For Sale(1) |  | Available For Sale(1)
Beginning balance | $ | 19,855 |  | $ | 22,914
Total gains (realized/unrealized): |  |  |  |  |
Included in other comprehensive income |  | 228 |  |  | 2,500
Purchases |  | 500 |  |  | -
Principal repayments and amortization |  | (2,714) |  |  | (5,075)
Ending balance | $ | 17,869 |  | $ | 20,339
(1) | Amounts mostly related to private label MBS.
Impairment or Valuation Adjustments were Recorded for Assets Recognized at Fair Value |
As of September 30, 2018, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:
|  |  |  |  |  |  |  |  |  |  | (Losses) Gains recorded for the Quarter Ended |  | (Losses) Gains recorded for the Nine-Month Period Ended
|  | Carrying value as of September 30, 2018 |  | September 30, 2018 |  | September 30, 2018
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable (1) | $ | - |  | $ | - |  | $ | 442,248 |  | $ | (7,967) |  | $ | (20,622)
OREO (2) |  | - |  |  | - |  |  | 135,218 |  |  | (3,244) |  |  | (9,817)
Loans held for sale (3) |  | - |  |  | - |  |  | 44,177 |  |  | (10,102) |  |  | (14,642)
(1) | Consists mainly of impaired commercial and construction loans. The impairments were generally measured based on the fair value of the collateral. The fair values were derived from external appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable.
(2) | The fair values were derived from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio.
(3) | The value of these loans was primarily derived from both external appraisals, adjusted for specific characteristics of the loans, and, for the $17.2 million in non-performing loans transferred to held for sale in the third quarter of 2018, from broker price opinions that the Corporation considered.
As of September 30, 2017, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:
|  |  |  |  |  |  |  |  |  |  | (Losses) recorded for the Quarter Ended |  | (Losses) recorded for the Nine-Month Period
|  | Carrying value as of September 30, 2017 |  | September 30, 2017 |  | September 30, 2017
|  | Level 1 |  | Level 2 |  | Level 3 |  |  |  |  |  |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loans receivable (1) | $ | - |  | $ | - |  | $ | 374,740 |  | $ | (686) |  | $ | (23,467)
OREO (2) |  | - |  |  | - |  |  | 152,977 |  |  | (818) |  |  | (7,563)
Mortgage servicing rights (3) |  | - |  |  | - |  |  | 25,999 |  |  | (690) |  |  | (1,047)
(1) | Consists mainly of impaired commercial and construction loans. The impairments were generally measured based on the fair value of the collateral. The fair values were derived from external appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable.
(2) | The fair values were derived from appraisals that take into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio.
(3) | Fair value adjustments to the mortgage servicing rights were mainly due to assumptions associated with mortgage prepayments rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights include: Prepayment Rate of 6.41%, Discount Rate of 11.22%.
Estimated Fair Value and Carrying Value of Financial Instruments |
The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial instruments as of September 30, 2018 and December 31, 2017:
| Total Carrying Amount in Statement of Financial Condition September 30, 2018 |  | Fair Value Estimate September 30, 2018 |  | Level 1 |  | Level 2 |  | Level 3
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks and money |  |  |  |  |  |  |  |  |  |  |  |  |  |
market investments (amortized cost) | $ | 656,772 |  | $ | 656,772 |  | $ | 656,772 |  | $ | - |  | $ | -
Investment securities available |  |  |  |  |  |  |  |  |  |  |  |  |  |
for sale (fair value) |  | 2,011,221 |  |  | 2,011,221 |  |  | 7,426 |  |  | 1,985,926 |  |  | 17,869
Investment securities held to maturity (amortized cost) |  | 144,799 |  |  | 131,703 |  |  | - |  |  | - |  |  | 131,703
Equity Securities (fair value) |  | 42,274 |  |  | 42,274 |  |  | 411 |  |  | 41,863 |  |  | -
Loans held for sale (lower of cost or market) |  | 65,739 |  |  | 65,907 |  |  | - |  |  | 21,730 |  |  | 44,177
Loans held for investment (amortized cost) |  | 8,716,953 |  |  |  |  |  |  |  |  |  |  |  |
Less: allowance for loan and lease losses |  | (200,563) |  |  |  |  |  |  |  |  |  |  |  |
Loans held for investment, net of allowance | $ | 8,516,390 |  |  | 8,174,205 |  |  | - |  |  | - |  |  | 8,174,205
Derivatives, included in assets (fair value) |  | 931 |  |  | 931 |  |  | - |  |  | 931 |  |  | -
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits (amortized cost) |  | 9,148,243 |  |  | 9,151,666 |  |  | - |  |  | 9,151,666 |  |  | -
Securities sold under agreements |  |  |  |  |  |  |  |  |  |  |  |  |  |
to repurchase (amortized cost) |  | 100,000 |  |  | 121,047 |  |  | - |  |  | 121,047 |  |  | -
Advances from FHLB (amortized cost) |  | 690,000 |  |  | 673,788 |  |  | - |  |  | 673,788 |  |  | -
Other borrowings (amortized cost) |  | 184,150 |  |  | 175,480 |  |  | - |  |  | - |  |  | 175,480
Derivatives, included in liabilities (fair value) |  | 835 |  |  | 835 |  |  | - |  |  | 835 |  |  | -
| Total Carrying Amount in Statement of Financial Condition December 31, 2017 |  | Fair Value Estimate December 31, 2017 |  | Level 1 |  | Level 2 |  | Level 3
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and due from banks and money |  |  |  |  |  |  |  |  |  |  |  |  |  |
market investments (amortized cost) | $ | 716,395 |  | $ | 716,395 |  | $ | 716,395 |  | $ | - |  | $ | -
Investment securities available |  |  |  |  |  |  |  |  |  |  |  |  |  |
for sale (fair value) |  | 1,891,016 |  |  | 1,891,016 |  |  | 7,819 |  |  | 1,863,342 |  |  | 19,855
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |
held to maturity (amortized cost) |  | 150,627 |  |  | 131,032 |  |  | - |  |  | - |  |  | 131,032
Equity securities (fair value) |  | 43,119 |  |  | 43,119 |  |  | - |  |  | 43,119 |  |  | -
Loans held for sale (lower of cost or market) |  | 32,980 |  |  | 34,979 |  |  | - |  |  | 25,237 |  |  | 9,742
Loans held for investment (amortized cost) |  | 8,850,476 |  |  |  |  |  |  |  |  |  |  |  |
Less: allowance for loan and lease losses |  | (231,843) |  |  |  |  |  |  |  |  |  |  |  |
Loans held for investment, net of allowance | $ | 8,618,633 |  |  | 8,372,865 |  |  | - |  |  | - |  |  | 8,372,865
Derivatives, included in assets (fair value) |  | 312 |  |  | 312 |  |  | - |  |  | 312 |  |  | -
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits (amortized cost) |  | 9,022,631 |  |  | 9,026,600 |  |  | - |  |  | 9,026,600 |  |  | -
Securities sold under |  |  |  |  |  |  |  |  |  |  |  |  |  |
agreements to repurchase (amortized cost) |  | 300,000 |  |  | 325,913 |  |  | - |  |  | 325,913 |  |  | -
Advances from FHLB (amortized cost) |  | 715,000 |  |  | 707,272 |  |  | - |  |  | 707,272 |  |  | -
Other borrowings (amortized cost) |  | 208,635 |  |  | 189,424 |  |  | - |  |  | - |  |  | 189,424
Derivatives, included in liabilities (fair value) |  | 324 |  |  | 324 |  |  | - |  |  | 324 |  |  | -
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block] |
Qualitative information regarding the fair value measurements for Level 3 financial instruments as of September 30, 2018 are as follows:
| September 30, 2018
| Method |  | Inputs
Loans | Income, Market, Comparable Sales, Discounted Cash Flows |  | External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors
OREO | Income, Market, Comparable Sales, Discounted Cash Flows |  | External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block] |
The tables below present qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2018 and December 31, 2017:
| September 30, 2018
(In thousands) | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range
Investment securities available-for-sale:
Private label MBS | $ | 14,571 |  | Discounted cash flows |  | Discount rate |  | 14.8%
|  |  |  |  |  | Prepayment rate |  | 3.5% - 22.5% (Weighted Average 11.7%)
|  |  |  |  |  | Projected Cumulative Loss Rate |  | 0.0% - 7.8% (Weighted Average 4%)
Puerto Rico government obligations |  | 2,798 |  | Discounted cash flows |  | Discount rate |  | 5.90%
|  |  |  |  |  | Prepayment rate |  | 3.00%
| December 31, 2017
(In thousands) | Fair Value |  | Valuation Technique |  | Unobservable Input |  | Range
Investment securities available-for-sale:
Private label MBS | $ | 17,060 |  | Discounted cash flows |  | Discount rate |  | 14.0%
|  |  |  |  |  | Prepayment rate |  | 12.0% - 29.0% (Weighted Average 16.4%)
|  |  |  |  |  | Projected Cumulative Loss Rate |  | 0.0% - 6.8% (Weighted Average 3.0%)
Puerto Rico government obligations |  | 2,695 |  | Discounted cash flows |  | Discount rate |  | 6.61%
|  |  |  |  |  | Prepayment rate |  | 3.00%

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