Fair value measurement (Tables)

6 Months Ended

Jun. 30, 2011

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy tables present information about the Corporation’s assets and liabilities measured at fair value on a recurring basis at June 30, 2011, December 31, 2010 and June 30, 2010:


At June 30, 2011
(In thousands)	Level 1		Level 2			Level 3		Balance at June 30, 2011
Assets
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	38,192		$	—	$	38,192
Obligations of U.S. Government sponsored entities		—		1,248,688			—		1,248,688
Obligations of Puerto Rico, States and political subdivisions		—		34,266			—		34,266
Collateralized mortgage obligations - federal agencies		—		1,613,062			—		1,613,062
Collateralized mortgage obligations - private label		—		70,486			—		70,486
Mortgage-backed securities		—		2,341,390			7,634		2,349,024
Equity securities		3,779		4,486			—		8,265
Other		—		27,508			—		27,508

Total investment securities available-for-sale	$	3,779	$	5,378,078		$	7,634	$	5,389,491

Trading account securities, excluding derivatives:
Obligations of Puerto Rico, States and political subdivisions	$	—	$	10,315		$	—	$	10,315
Collateralized mortgage obligations		—		710			2,638		3,348
Residential mortgage-backed securities - federal agencies		—		721,731			27,079		748,810
Other		—		18,942			3,571		22,513

Total trading account securities	$	—	$	751,698		$	33,288	$	784,986

Mortgage servicing rights	$	—	$	—		$	162,619	$	162,619
Derivatives		—		69,232			—		69,232

Total	$	3,779	$	6,199,008		$	203,541	$	6,406,328

Liabilities
Derivatives	$	—	$	(68,766	)	$	—	$	(68,766	)

Total	$	—	$	(68,766	)	$	—	$	(68,766	)


At December 31, 2010
(In thousands)	Level 1		Level 2			Level 3		Balance at December 31, 2010
Assets
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	38,136		$	—	$	38,136
Obligations of U.S. Government sponsored entities		—		1,211,304			—		1,211,304
Obligations of Puerto Rico, States and political subdivisions		—		52,702			—		52,702
Collateralized mortgage obligations - federal agencies		—		1,238,294			—		1,238,294
Collateralized mortgage obligations - private label		—		84,938			—		84,938
Mortgage-backed securities		—		2,568,396			7,759		2,576,155
Equity securities		3,952		5,523			—		9,475
Other		—		25,848			—		25,848

Total investment securities available-for-sale	$	3,952	$	5,225,141		$	7,759	$	5,236,852

Trading account securities, excluding derivatives:
Obligations of Puerto Rico, States and political subdivisions	$	—	$	16,438		$	—	$	16,438
Collateralized mortgage obligations		—		769			2,746		3,515
Residential mortgage-backed securities - federal agencies		—		472,806			20,238		493,044
Other		—		30,423			2,810		33,233

Total trading account securities	$	—	$	520,436		$	25,794	$	546,230

Mortgage servicing rights	$	—	$	—		$	166,907	$	166,907
Derivatives		—		72,993			—		72,993

Total	$	3,952	$	5,818,570		$	200,460	$	6,022,982

Liabilities
Derivatives	$	—	$	(76,344	)	$	—	$	(76,344	)
Trading liabilities		—		(10,459	)		—		(10,459	)
Equity appreciation instrument		—		(9,945	)		—		(9,945	)

Total	$	—	$	(96,748	)	$	—	$	(96,748	)


At June 30, 2010
(In thousands)	Level 1		Level 2			Level 3		Balance at June 30, 2010
Assets
Investment securities available-for-sale:
U.S. Treasury securities	$	—	$	140,687		$	—	$	140,687
Obligations of U.S. Government sponsored entities		—		1,749,475			—		1,749,475
Obligations of Puerto Rico, States and political subdivisions		—		55,632			—		55,632
Collateralized mortgage obligations - federal agencies		—		1,445,018			—		1,445,018
Collateralized mortgage obligations - private label		—		101,987			—		101,987
Mortgage-backed securities		—		2,947,312			32,372		2,979,684
Equity securities		3,469		5,235			—		8,704

Total investment securities available-for-sale	$	3,469	$	6,445,346		$	32,372	$	6,481,187

Trading account securities, excluding derivatives:
Obligations of Puerto Rico, States and political subdivisions	$	—	$	9,726		$	—	$	9,726
Collateralized mortgage obligations		—		908			2,667		3,575
Residential mortgage-backed securities - federal agencies		—		261,150			114,281		375,431
Other		—		9,539			3,232		12,771

Total trading account securities	$	—	$	281,323		$	120,180	$	401,503

Mortgage servicing rights	$	—	$	—		$	171,994	$	171,994
Derivatives		—		79,611			—		79,611

Total	$	3,469	$	6,806,280		$	324,546	$	7,134,295

Liabilities
Derivatives	$	—	$	(86,846	)	$	—	$	(86,846	)

Total	$	—	$	(86,846	)	$	—	$	(86,846	)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters and six months ended June 30, 2011 and 2010.


Quarter ended June 30, 2011
(In millions)	Balance at March 31, 2011		Gains (losses) included in earnings/ OCI			Purchases		Sales			Settlements			Balance at June 30, 2011		Changes in unrealized gains (losses) included in earnings/OCI related to assets still held at June 30, 2011
Assets
Investment securities available-for-sale:
Mortgage-backed securities	$	8	$	—		$	—	$	—		$	—		$	8	$	—

Total investment securities available-for-sale	$	8	$	—		$	—	$	—		$	—		$	8	$	—

Trading account securities:
Collateralized mortgage obligations	$	3	$	—		$	—	$	—		$	—		$	3	$	—
Residential mortgage-backed securities - federal agencies		21		1			8		(2	)		(1	)		27		—
Other		3		—			1		(1	)		—			3		1

Total trading account securities	$	27	$	1		$	9	$	(3	)	$	(1	)	$	33	$	1	[a]

Mortgage servicing rights	$	168	$	(10	)	$	5	$	—		$	—		$	163	$	(6	)[b]

Total	$	203	$	(9	)	$	14	$	(3	)	$	(1	)	$	204	$	(5	)

[a]	Gains (losses) are included in “Trading account profit” in the Statement of Operations.

[b]	Gains (losses) are included in “Other services fees” in the Statement of Operations.


Six months ended June 30, 2011
(In millions)	Balance at December 31, 2010		Gains (losses) included in earnings/ OCI			Purchases		Sales			Settlements			Balance at June 30, 2011		Changes in unrealized gains (losses) included in earnings/OCI related to assets still held at June 30, 2011
Assets
Investment securities available-for-sale:
Mortgage-backed securities	$	8	$	—		$	—	$	—		$	—		$	8	$	—

Total investment securities available-for-sale	$	8	$	—		$	—	$	—		$	—		$	8	$	—

Trading account securities:
Collateralized mortgage obligations	$	3	$	—		$	—	$	—		$	—		$	3	$	—
Residential mortgage-backed securities - federal agencies		20		1			10		(3	)		(1	)		27		—
Other		3		—			1		(1	)		—			3		1

Total trading account securities	$	26	$	1		$	11	$	(4	)	$	(1	)	$	33	$	1	[a]

Mortgage servicing rights	$	167	$	(16	)	$	12	$	—		$	—		$	163	$	(8	)[b]

Total	$	201	$	(15	)	$	23	$	(4	)	$	(1	)	$	204	$	(7	)

[a]	Gains (losses) are included in “Trading account profit” in the Statement of Operations.

[b]	Gains (losses) are included in “Other services fees” in the Statement of Operations.


Quarter ended June 30, 2010
(In millions)	Balance at March 31, 2010		Gains (losses) included in earnings/ OCI			Issuances		Purchases		Sales			Paydowns			Transfers in (out) of Level 3			Balance at June 30, 2010		Changes in unrealized gains (losses) included in earnings/OCI related to assets still held at June 30, 2010
Assets
Investment securities available-for-sale:
Mortgage-backed securities	$	36	$	—		$	—	$	—	$	—		$	(1	)	$	(3	)	$	32	$	—

Total investment securities available-for-sale	$	36	$	—		$	—	$	—	$	—		$	(1	)	$	(3	)	$	32	$	—

Trading account securities:
Collateralized mortgage obligations	$	3	$	—		$	—	$	—	$	—		$	—		$	—		$	3	$	—
Residential mortgage-backed securities - federal agencies		197		(5	)		—		4		(4	)		(2	)		(76	)		114		1
Other		3		—			—		—		—			—			—			3		—

Total trading account securities	$	203	$	(5	)	$	—	$	4	$	(4	)	$	(2	)	$	(76	)	$	120	$	1	[a]

Mortgage servicing rights	$	173	$	(9	)	$	—	$	8	$	—		$	—		$	—		$	172	$	(5	)[b]

Total	$	412	$	(14	)	$	—	$	12	$	(4	)	$	(3	)	$	(79	)	$	324	$	(4	)

[a]	Gains (losses) are included in “Trading account profit” in the Statement of Operations.

[b]	Gains (losses) are included in “Other services fees” in the Statement of Operations.


Six months ended June 30, 2010
(In millions)	Balance at December 31, 2009		Gains (losses) included in earnings/ OCI			Issuances		Purchases		Sales			Paydowns			Transfers in (out) of Level 3			Balance at June 30, 2010		Changes in unrealized gains (losses) included in earnings/OCI related to assets still held at June 30, 2010
Assets
Investment securities available-for-sale:
Mortgage-backed securities	$	34	$	—		$	2	$	—	$	—		$	(1	)	$	(3	)	$	32	$	—

Total investment securities available-for-sale	$	34	$	—		$	2	$	—	$	—		$	(1	)	$	(3	)	$	32	$	—

Trading account securities:
Collateralized mortgage obligations	$	3	$	—		$	—	$	—	$	—		$	—		$	—		$	3	$	—
Residential mortgage-backed securities - federal agencies		224		(5	)		—		14		(37	)		(6	)		(76	)		114		1
Other		3		—			—		—		—			—			—			3		—

Total trading account securities	$	230	$	(5	)	$	—	$	14	$	(37	)	$	(6	)	$	(76	)	$	120	$	1	[a]

Mortgage servicing rights	$	170	$	(10	)	$	—	$	12	$	—		$	—		$	—		$	172	$	(2	)[b]

Total	$	434	$	(15	)	$	2	$	26	$	(37	)	$	(7	)	$	(79	)	$	324	$	(1	)

[a]	Gains (losses) are included in “Trading account profit” in the Statement of Operations.

[b]	Gains (losses) are included in “Other services fees” in the Statement of Operations.

Gains and Losses (Realized and Unrealized) Included in Earnings for Level 3 Assets and Liabilities

Gains and losses (realized and unrealized) included in earnings for the quarter and six months ended June 30, 2011 and 2010 for Level 3 assets and liabilities included in the previous tables are reported in the consolidated statement of operations as follows:


	Quarter ended June 30, 2011						Six months ended June 30, 2011
(In millions)	Total gains (losses) included in earnings			Changes in unrealized to gains (losses) relating assets still held at reporting date			Total gains (losses) included in earnings			Changes in unrealized to gains (losses) relating assets still held at reporting date
Other service fees	$	(10	)	$	(6	)	$	(16	)	$	(8	)
Trading account profit		1			1			1			1

Total	$	(9	)	$	(5	)	$	(15	)	$	(7	)


	Quarter ended June 30, 2010						Six months ended June 30, 2010
(In millions)	Total gains (losses) included in earnings			Changes in unrealized to gains (losses) relating assets still held at reporting date			Total gains (losses) included in earnings			Changes in unrealized to gains (losses) relating assets still held at reporting date
Other service fees	$	(9	)	$	(5	)	$	(10	)	$	(2	)
Trading account profit		(5	)		1			(5	)		1

Total	$	(14	)	$	(4	)	$	(15	)	$	(1	)

Aggregate Fair Value Measurements of Assets

The following tables present financial and non-financial assets that were subject to a fair value measurement on a nonrecurring basis during the six months ended June 30, 2011 and 2010, and which were still included in the consolidated statement of condition as of such dates. The amounts disclosed represent the aggregate fair value measurements of those assets as of the end of the reporting period.


Carrying value at June 30, 2011
(In millions)	Level 1		Level 2		Level 3		Total		Write- downs
Loans^[1]		—		—	$	25	$	25	$	(4	)
Loans held-for-sale ^[2]		—		—		139		139		(14	)
Other real estate owned ^[3]		—		—		25		25		(9	)

Total		—		—	$	189	$	189	$	(27	)

[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, in accordance with the provisions of ASC Section 310-10-35.

[2]	Relates to lower of cost or fair value adjustments of loans held-for-sale and loans transferred from loans held-in-portfolio to loans held-for-sale. These adjustments were principally determined based on negotiated price terms for the loans.

[3]	Represents the fair value of foreclosed real estate owned that were measured at fair value.


Carrying value at June 30, 2010
(In millions)	Level 1		Level 2		Level 3		Total		Write- downs
Loans^[1]		—		—	$	610	$	610	$	(240	)
Loans held-for-sale^[2]		—		—		2		2		(11	)
Other real estate owned^[3]		—		—		42		42		(18	)

Total		—		—	$	654	$	654	$	(269	)

[1]

[2]	Relates to lower of cost or fair value adjustments of loans held-for-sale and loans transferred from loans held-in-portfolio to loans held-for-sale. These adjustments were principally determined based on negotiated price terms for the loans.

[3]	Represents the fair value of foreclosed real estate owned that were measured at fair value.

- Definition

Tabular disclosure of the total amount of gains or losses for the period which are included in earnings or resulted in a change to net assets which gains or losses have arisen from the use of significant unobservable inputs (Level 3) to measure the fair value of assets and liabilities. Such gains or losses are attributable to the change in unrealized gains or losses relating to those assets and liabilities so valued which are still held at the reporting date and which change are also considered for disclosure; it may be expected that a description of where those unrealized gains or losses are reported in the statement of income or the statement of financial position would also be disclosed.

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- Definition

Tabular disclosure of assets and liabilities by class, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a nonrecurring basis in periods after initial recognition (for example, impaired assets). The disclosures that may be required or desired include: (a) the fair value measurements recorded during the period and the reasons for the measurements and (b) 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 or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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- Definition

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, 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, issuances, 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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