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FAIR VALUE (Tables)

9 Months Ended

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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- 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 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 input and valuation technique used to measure fair value and change in valuation approach and technique used to measure similar asset in prior period by class of asset or liability on non-recurring basis.

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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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