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FAIR VALUE | 9 Months Ended
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Sep. 30, 2025
FAIR VALUE [Abstract] |
FAIR VALUE | NOTE 15 – FAIR VALUE Fair Value Measurement ASC Topic 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a three-level hierarchy for measuring fair value based on the observability of inputs: (i) Level 1 inputs are quoted prices in active markets for identical assets and liabilities; (ii) Level 2 inputs are observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices); and (iii) Level 3 inputs are unobservable inputs, requiring significant judgement due to limited or no market activity. See Note 23 – “Fair Value,” to the audited consolidated financial statements included in the 2024 Annual Report on Form 10-K for a description of the valuation methodologies used to measure financial instruments at fair value on a recurring basis. There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2 measurements during the quarters and nine-month periods ended September 30, 2025 and 2024. Assets and liabilities measured at fair value on a recurring basis are summarized below as of the indicated dates: As of September 30, 2025 As of December 31, 2024 Fair Value Measurements Using Fair Value Measurements Using Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (In thousands) Assets: Available-for-sale debt securities: U.S. Treasury securities $ 496,803 $ - $ - $ 496,803 $ 59,189 $ - $ - $ 59,189 Noncallable U.S. agencies debt securities - 646,783 - 646,783 - 533,296 - 533,296 Callable U.S. agencies debt securities - 612,631 - 612,631 - 1,307,035 - 1,307,035 MBS - 2,836,675 3,332 (1) 2,840,007 - 2,658,967 4,195 (1) 2,663,162 Puerto Rico government obligation - - 1,579 1,579 - - 1,620 1,620 Other investments - - 500 500 - - 1,000 1,000 Equity securities 5,009 - - 5,009 4,886 - - 4,886 Derivative assets - 332 - 332 - 318 - 318 Liabilities: Derivative liabilities - 264 - 264 - 150 - 150 (1) Related to private label MBS. The table below presents a reconciliation of the beginning and ending balances of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters and nine-month periods ended September 30, 2025 and 2024: Quarter Ended September 30, Nine-Month Period Ended September 30, 2025 2024 2025 2024 Level 3 Instruments Only Securities Available for Sale (1) Securities Available for Sale (1) Securities Available for Sale (1) Securities Available for Sale (1) (In thousands) Beginning balance $ 5,857 $ 7,099 $ 6,815 $ 6,200 Total (losses) gains: Included in other comprehensive income (unrealized) (72) 178 219 592 Included in earnings (unrealized) (2) (146) 36 (138) 45 Purchases - - - 1,000 Principal repayments and amortization (3) (228) (425) (1,485) (949) Ending balance $ 5,411 $ 6,888 $ 5,411 $ 6,888 ___________________ (1) Amounts mostly related to private label MBS. (2) Changes in unrealized (losses) gains included in earnings were recognized within provision for credit losses – expense and relate to assets still held as of the reporting date. (3) For the nine-month period ended September 30, 2025 include a $ 0.5 million repayment of a matured debt security. The tables below present quantitative information for significant assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of the indicated dates: September 30, 2025 Fair Value Valuation Technique Unobservable Input Range Weighted Average Minimum Maximum (Dollars in thousands) Available-for-sale debt securities: Private label MBS $ 3,332 Discounted cash flows Discount rate 16.0% 16.0% 16.0% Prepayment rate 1.6% 8.1% 3.4% Projected cumulative loss rate 0.1% 11.7% 5.8% Puerto Rico government obligation $ 1,579 Discounted cash flows Discount rate 11.3% 11.3% 11.3% Projected cumulative loss rate 24.3% 24.3% 24.3% December 31, 2024 Fair Value Valuation Technique Unobservable Input Range Weighted Average Minimum Maximum (Dollars in thousands) Available-for-sale debt securities: Private label MBS $ 4,195 Discounted cash flows Discount rate 16.6% 16.6% 16.6% Prepayment rate 0.0% 5.7% 3.2% Projected cumulative loss rate 0.1% 10.1% 4.9% Puerto Rico government obligation $ 1,620 Discounted cash flows Discount rate 11.5% 11.5% 11.5% Projected cumulative loss rate 23.9% 23.9% 23.9% Information about Sensitivity to Changes in Significant Unobservable Inputs Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption, and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default, loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of the instruments. The Corporation modeled meaningful and possible shifts of each input to assess the effect on the fair value estimation. Puerto Rico Government Obligation: The significant unobservable input used in the fair value measurement is the assumed loss rate of the underlying residential mortgage loans that collateralize a pass-through MBS guaranteed by the PRHFA. A significant increase (decrease) in the assumed rate would lead to a (lower) higher fair value estimate. See Note 2 – “Debt Securities” for information on the methodology used to calculate the fair value of this debt security. Additionally, fair value is used on a non-recurring basis to evaluate certain assets in accordance with GAAP. For the quarter and nine-month period ended September 30, 2025, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis and still held at September 30, 2025, as shown in the following table: Carrying value as of September 30, 2025 Related to losses recorded for the Quarter Ended September 30, 2025 Related to losses recorded for the Nine-Month Period Ended September 30, 2025 Losses recorded for the Quarter Ended September 30, 2025 Losses recorded for the Nine-Month Period Ended September 30, 2025 (In thousands) Level 3: Loans receivable (1) $ 250 $ 9,214 $ (12) $ (630) OREO (2) (3) 211 387 (1) (5) (1) Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values 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. There were no adjustments applied on appraisals for the quarter ended September 30, 2025. The adjustment applied on appraisals was of 22 % for the nine-month period ended September 30, 2025. (2) The Corporation derived the fair values 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. The adjustments applied on appraisals ranged from 3 % to 24 % for the quarter and nine-month period ended September 30, 2025. (3) Excludes the aforementioned $ 2.8 million adjustment in connection with ongoing litigation involving a commercial OREO property in the Virgin Islands region. See Note 19 – “Regulatory Matters, Commitments and Contingencies” for further details. For the quarter and nine-month period ended September 30, 2024, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis and still held at September 30, 2024, as shown in the following table: Carrying value as of September 30, 2024 Related to losses recorded for the Quarter Ended September 30, 2024 Related to losses recorded for the Nine-Month Period Ended September 30, 2024 Losses recorded for the Quarter Ended September 30, 2024 Losses recorded for the Nine-Month Period Ended September 30, 2024 (In thousands) Level 3: Loans receivable (1) $ 5,910 $ 22,204 $ (386) $ (1,441) OREO (2) 752 1,437 (33) (108) Level 2: (1) Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values 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. There were no adjustments applied on appraisals for the quarter ended September 30, 2024. The adjustments applied on appraisals were of 4 % for the nine-month period ended September 30, 2024. (2) The Corporation derived the fair values 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. The adjustments applied ranged from 2 % to 44 % for the quarter and nine-month period ended September 30, 2024. See Note 23 – “Fair Value,” to the audited consolidated financial statements included in the 2024 Annual Report on Form 10-K for qualitative information regarding the fair value measurements for Level 3 financial instruments measured at fair value on a nonrecurring basis. The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial instruments as of the indicated dates: Total Carrying Amount in Statement of Financial Condition as of September 30, 2025 Fair Value Estimate as of September 30, 2025 Level 1 Level 2 Level 3 (In thousands) Assets: Cash and due from banks and money market investments (amortized cost) $ 899,570 $ 899,570 $ 899,570 $ - $ - Available-for-sale debt securities (fair value) 4,598,303 4,598,303 496,803 4,096,089 5,411 Held-to-maturity debt securities: Held-to-maturity debt securities (amortized cost) 273,363 Less: ACL on held-to-maturity debt securities (698) Held-to-maturity debt securities, net of ACL $ 272,665 269,253 - 184,070 85,183 Equity securities (amortized cost) 39,381 39,381 - 39,381 (1) - Other equity securities (fair value) 5,009 5,009 5,009 - - Loans held for sale (lower of cost or market) 12,546 12,793 - 12,793 - Loans held for investment: Loans held for investment (amortized cost) 13,048,684 Less: ACL for loans and finance leases (246,990) Loans held for investment, net of ACL $ 12,801,694 12,700,160 - - 12,700,160 MSRs (amortized cost) 23,659 41,710 - - 41,710 Derivative assets (fair value) (2) 332 332 - 332 - Liabilities: Deposits (amortized cost) $ 16,861,047 $ 16,864,154 $ - $ 16,864,154 $ - Long-term advances from the FHLB (amortized cost) 290,000 292,473 - 292,473 - Derivative liabilities (fair value) (2) 264 264 - 264 - (1) Includes FHLB stock with a carrying value of $ 24.7 million, which is considered restricted. (2) Includes interest rate swap agreements, forward contracts, and interest rate lock commitments. Total Carrying Amount in Statement of Financial Condition as of December 31, 2024 Fair Value Estimate as of December 31, 2024 Level 1 Level 2 Level 3 (In thousands) Assets: Cash and due from banks and money market investments (amortized cost) $ 1,159,415 $ 1,159,415 $ 1,159,415 $ - $ - Available-for-sale debt securities (fair value) 4,565,302 4,565,302 59,189 4,499,298 6,815 Held-to-maturity debt securities: Held-to-maturity debt securities (amortized cost) 317,786 Less: ACL on held-to-maturity debt securities (802) Held-to-maturity debt securities, net of ACL $ 316,984 308,040 - 212,432 95,608 Equity securities (amortized cost) 47,132 47,132 - 47,132 (1) - Other equity securities (fair value) 4,886 4,886 4,886 - - Loans held for sale (lower of cost or market) 15,276 15,276 - 15,276 - Loans held for investment: Loans held for investment (amortized cost) 12,746,556 Less: ACL for loans and finance leases (243,942) Loans held for investment, net of ACL $ 12,502,614 12,406,405 - - 12,406,405 MSRs (amortized cost) 25,019 43,046 - - 43,046 Derivative assets (fair value) (2) 318 318 - 318 - Liabilities: Deposits (amortized cost) $ 16,871,298 $ 16,872,963 $ - $ 16,872,963 $ - Long-term advances from the FHLB (amortized cost) 500,000 500,128 - 500,128 - Junior subordinated debentures (amortized cost) 61,700 61,752 - - 61,752 Derivative liabilities (fair value) (2) 150 150 - 150 - (1) Includes FHLB stock with a carrying value of $ 34.0 million, which is considered restricted. (2) Includes interest rate swap agreements, forward contracts, and interest rate lock commitments. The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and equipment, goodwill and other intangible assets, are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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