FAIR VALUE (Tables)

3 Months Ended

Sep. 30, 2015

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, 2015								As of December 31, 2014
	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 :
U.S. Treasury Securities	$	7,537	$	-	$	-	$	7,537	$	7,499	$	-	$	-	$	7,499
Noncallable U.S. agency debt		-		319,357		-		319,357		-		228,157		-		228,157
MBS and Callable U.S. agency debt		-		1,519,218		-		1,519,218		-		1,653,140		-		1,653,140
Puerto Rico government obligations		-		32,047		2,088		34,135		-		40,658		2,564		43,222
Private label MBS		-		-		27,520		27,520		-		-		33,648		33,648
Other investments		-		-		100		100		-		-		-		-
Derivatives, included in assets:
Interest rate swap agreements		-		-		-		-		-		33		-		33
Purchased interest rate cap agreements		-		806		-		806		-		6		-		6
Liabilities:
Derivatives, included in liabilities:
Interest rate swap agreements		-		-		-		-		-		33		-		33
Written interest rate cap agreement		-		793		-		793		-		6		-		6
Forward contracts		-		245		-		245		-		148		-		148

Schedule of Changes in Fair Value

The tables below summarize changes in unrealized gains and losses recorded in earnings for the quarters and nine-month periods ended September 30, 2015 and 2014 for Level 3 assets and liabilities that are still held at the end of each period:

	Changes in Unrealized Losses		Changes in Unrealized Losses
	Quarter ended September 30, 2015		Quarter ended September 30, 2014
Level 3 Instruments Only	Securities		Securities
(In thousands)	Available For Sale		Available For Sale

Changes in unrealized losses relating to assets still held at reporting date:
Net impairment losses on available-for-sale investment securities (credit component)	$	(231)	$	(245)

	Changes in Unrealized Losses		Changes in Unrealized Losses
	Nine-Month Period Ended September 30, 2015		Nine-Month Period Ended September 30, 2014
Level 3 Instruments Only	Securities		Securities
(In thousands)	Available For Sale		Available For Sale

Changes in unrealized losses relating to assets still held at reporting date:
Net impairment losses on available-for-sale investment securities (credit component)	$	(628)	$	(245)

Fair Value of Assets and Liabilities Measured on Recurring Basis

		Total Fair Value Measurements
		Quarter Ended September 30,
		2015		2014
Level 3 Instruments Only		Securities		Securities
(In thousands)		Available For Sale⁽¹⁾		Available For Sale⁽¹⁾

Beginning balance		$	31,640	$	40,918
Total gains or (losses) (realized/unrealized):
Included in earnings			(231)		(245)
Included in other comprehensive income			345		333
Principal repayments and amortization			(2,046)		(2,124)
Ending balance		$	29,708	$	38,882

(1)	Amounts mostly related to private label mortgage-backed securities.

		Total Fair Value Measurements
		Nine-Month Period Ended September 30,
		2015		2014
Level 3 Instruments Only		Securities		Securities
(In thousands)		Available For Sale⁽¹⁾		Available For Sale⁽¹⁾

Beginning balance		$	36,212	$	43,292
Total gains or (losses) (realized/unrealized):
Included in earnings			(628)		(245)
Included in other comprehensive income			1,489		2,026
Purchases			100		5,123
Sales			-		(4,855)
Principal repayments and amortization			(7,465)		(6,459)
Ending balance		$	29,708	$	38,882

(1)	Amounts mostly related to private label mortgage-backed securities.

Impairment or Valuation Adjustments were Recorded for Assets Recognized at Fair Value

As of September 30, 2015, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:

		Carrying value as of September 30, 2015						(Losses) recorded for the Quarter Ended September 30, 2015		(Losses) recorded for the Nine-Month Period Ended September 30, 2015
		Level 1		Level 2		Level 3
			(In thousands)

Loans receivable⁽¹⁾		$	-	$	-	$	332,688	$	(7,864)	$	(22,431)
OREO⁽²⁾			-		-		124,442		(4,025)		(8,790)
Mortgage servicing rights⁽³⁾			-		-		23,960		(23)		(170)
Loans Held For Sale⁽⁴⁾			-		-		8,027		0		0

(1)	Mainly impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was 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 value was 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) that 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 mortgage servicing rights were mainly due to assumptions associated with mortgage prepayment 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 9.32%, Discount Rate of 10.64%.
(4)	The value of these loans was derived from external appraisals, adjusted for specific characteristics of the loans.

As of September 30, 2014, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table:

		Carrying value as of September 30, 2014						(Losses) recorded for the Quarter Ended September 30, 2014		(Losses) recorded for the Nine-Month Period Ended September 30, 2014
		Level 1		Level 2		Level 3
		(In thousands)


Loans receivable⁽¹⁾		$	-	$	-	$	461,882	$	(6,495)	$	(30,376)
OREO⁽²⁾			-		-		112,803		(2,287)		(10,544)
Mortgage servicing rights⁽³⁾			-		-		22,503		(46)		(226)
Loans Held For Sale⁽⁴⁾			-		-		54,641		-		-

(1)	Mainly impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was 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 value was 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) that 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 9.71%, Discount Rate of 10.63%.
(4)	The value of these loans was derived from external appraisals, adjusted for specific characteristics of the loans.

Estimated Fair Value and Carrying Value of Financial Instruments

The following table presents the carrying value and the estimated fair value of financial instruments as of September 30, 2015 and December 31, 2014:

	Total Carrying Amount in Statement of Financial Condition September 30, 2015		Fair Value Estimate September 30, 2015		Level 1		Level 2		Level 3

	(In thousands)

Assets:
Cash and due from banks and money
market investments	$	961,737	$	961,737	$	961,737	$	-	$	-
Investment securities available
for sale		1,907,867		1,907,867		7,537		1,870,622		29,708
Other equity securities		26,319		26,319		-		26,319		-
Loans held for sale		34,587		35,767		-		27,740		8,027
Loans held for investment		9,301,945
Less: allowance for loan and lease losses		(228,966)
Loans held for investment, net of allowance	$	9,072,979		8,877,609		-		-		8,877,609
Derivatives, included in assets		806		806		-		806		-

Liabilities:
Deposits		9,716,461		9,724,759		-		9,724,759		-
Securities sold under agreements to repurchase		700,000		759,417		-		759,417		-
Advances from FHLB		325,000		326,483		-		326,483		-
Other borrowings		226,492		132,771		-		-		132,771
Derivatives, included in liabilities		1,038		1,038		-		1,038		-

	Total Carrying Amount in Statement of Financial Condition December 31, 2014		Fair Value Estimate December 31, 2014		Level 1		Level 2		Level 3

	(In thousands)

Assets:
Cash and due from banks and money
market investments	$	796,108	$	796,108	$	796,108	$	-	$	-
Investment securities available
for sale		1,965,666		1,965,666		7,499		1,921,955		36,212
Other equity securities		25,752		25,752		-		25,752		-
Loans held for sale		76,956		77,888		-		23,247		54,641
Loans held for investment		9,262,436
Less: allowance for loan and lease losses		(222,395)
Loans held for investment, net of allowance	$	9,040,041		8,844,659		-		-		8,844,659
Derivatives, included in assets		39		39		-		39		-

Liabilities:
Deposits		9,483,945		9,486,325		-		9,486,325		-
Securities sold under agreements to repurchase		900,000		958,715		-		958,715		-
Advances from FHLB		325,000		324,376		-		324,376		-
Notes Payable
Other borrowings		231,959		162,344		-		-		162,344
Derivatives, included in liabilities		187		187		-		187		-

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 is as follows:

	September 30, 2015
	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
Mortgage servicing rights	Discounted Cash Flow	Weighted average prepayment rate of 9.32%; weighted average discount rate of 10.64%

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

The table below presents qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2015:

	September 30, 2015
(In thousands)	Fair Value		Valuation Technique	Unobservable Input	Range

Investment securities available-for-sale:

Private label MBS	$	27,520	Discounted cash flow	Discount rate	14.5%
				Prepayment rate	17.83% -100% (Weighted Average 29.94%)
				Projected cumulative loss rate	0.16% -80% (Weighted Average 7.1%)
Puerto Rico Government Obligations		2,088	Discounted cash flow	Prepayment speed	3.00%