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Fair value measurement
3 Months Ended
Mar. 31, 2024
Fair Value Disclosures  
Fair Value Measurement
Note 23 – Fair value measurement
ASC Subtopic
 
820-10 “Fair
 
Value
 
Measurements and
 
Disclosures” establishes
 
a fair
 
value hierarchy
 
that prioritizes
 
the inputs
 
to
valuation techniques
 
used to
 
measure fair
 
value into
 
three levels
 
in order
 
to increase
 
consistency and
 
comparability in
 
fair value
measurements and disclosures. The hierarchy is broken
 
down into three levels based on the reliability
 
of inputs as follows:
Level 1
- Unadjusted quoted prices in active markets for identical assets or liabilities that the Corporation has the ability to
access at
 
the measurement date.
 
Valuation
 
on these
 
instruments does not
 
necessitate a
 
significant degree of
 
judgment
since valuations are based on quoted prices that
 
are readily
 
available in an active market.
Level 2
- Quoted prices other than those included in Level 1 that are observable either directly or indirectly.
 
Level 2 inputs
include
 
quoted
 
prices
 
for
 
similar
 
assets
 
or
 
liabilities
 
in
 
active
 
markets,
 
quoted
 
prices
 
for
 
identical
 
or
 
similar
 
assets
 
or
liabilities in
 
markets that
 
are
 
not active,
 
or other
 
inputs that
 
are
 
observable or
 
that can
 
be corroborated
 
by
 
observable
market data for substantially the full term of the
 
financial instrument.
Level
 
3
-
 
Inputs
 
are
 
unobservable
 
and
 
significant
 
to
 
the
 
fair
 
value
 
measurement.
 
Unobservable
 
inputs
 
reflect
 
the
Corporation’s own judgements about assumptions that
 
market participants would use in pricing the asset
 
or liability.
The
 
Corporation
 
maximizes
 
the
 
use
 
of
 
observable
 
inputs
 
and
 
minimizes
 
the
 
use
 
of
 
unobservable
 
inputs
 
by
 
requiring
 
that
 
the
observable inputs be used when
 
available. Fair value is
 
based upon quoted market prices
 
when available. If listed prices
 
or quotes
are
 
not
 
available,
 
the
 
Corporation
 
employs
 
internally-developed
 
models
 
that
 
primarily
 
use
 
market-based
 
inputs
 
including
 
yield
curves, interest rates,
 
volatilities, and credit
 
curves, among others.
 
Valuation
 
adjustments are limited
 
to those necessary
 
to ensure
that the financial instrument’s
 
fair value is adequately representative of
 
the price that would
 
be received or paid
 
in the marketplace.
These adjustments include amounts that reflect counterparty credit quality,
 
the Corporation’s credit standing, constraints on liquidity
and unobservable parameters that are applied consistently.
 
There have been no changes in the
 
Corporation’s methodologies used
to estimate the fair value of assets and liabilities from
 
those disclosed in the 2023 Form 10-K.
The estimated fair
 
value may
 
be subjective in
 
nature and may
 
involve uncertainties and
 
matters of
 
significant judgment for
 
certain
financial instruments. Changes in the underlying assumptions
 
used in calculating fair value could significantly
 
affect the results.
Fair Value on a Recurring and Nonrecurring 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 March 31, 2024 and December
 
31, 2023:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At March 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
6,262,480
$
6,026,731
$
-
$
-
$
12,289,211
Collateralized mortgage obligations - federal
agencies
-
127,608
-
-
127,608
Mortgage-backed securities
-
5,597,993
607
-
5,598,600
Other
-
5
2,000
-
2,005
Total debt securities
 
available-for-sale
$
6,262,480
$
11,752,337
$
2,607
$
-
$
18,017,424
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
8,316
$
-
$
-
$
-
$
8,316
Obligations of Puerto Rico, States and political
subdivisions
-
60
-
-
60
Collateralized mortgage obligations
-
90
-
-
90
Mortgage-backed securities
-
18,587
84
-
18,671
Other
-
-
166
-
166
Total trading account
 
debt securities, excluding
derivatives
$
8,316
$
18,737
$
250
$
-
$
27,303
Equity securities
$
-
$
40,933
$
-
$
336
$
41,269
Mortgage servicing rights
-
-
114,964
-
114,964
Loans held-for-sale
-
5,352
-
-
5,352
Derivatives
 
-
24,045
-
-
24,045
Total assets measured
 
at fair value on a
recurring basis
$
6,270,796
$
11,841,404
$
117,821
$
336
$
18,230,357
Liabilities
Derivatives
$
-
$
(21,784)
$
-
$
-
$
(21,784)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(21,784)
$
-
$
-
$
(21,784)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Measured at NAV
Total
RECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Debt securities available-for-sale:
U.S. Treasury securities
$
3,936,036
$
6,811,025
$
-
$
-
$
10,747,061
Collateralized mortgage obligations - federal
agencies
-
134,686
-
-
134,686
Mortgage-backed securities
-
5,844,180
606
-
5,844,786
Other
-
11
2,500
-
2,511
Total debt securities
 
available-for-sale
$
3,936,036
$
12,789,902
$
3,106
$
-
$
16,729,044
Trading account debt securities, excluding
derivatives:
U.S. Treasury securities
$
16,859
$
-
$
-
$
-
$
16,859
Obligations of Puerto Rico, States and political
subdivisions
-
71
-
-
71
Collateralized mortgage obligations
-
93
5
-
98
Mortgage-backed securities
-
14,261
112
-
14,373
Other
-
-
167
-
167
Total trading account
 
debt securities, excluding
derivatives
$
16,859
$
14,425
$
284
$
-
$
31,568
Equity securities
$
-
$
37,965
$
-
$
310
$
38,275
Mortgage servicing rights
-
-
118,109
-
118,109
Loans held-for-sale
-
3,239
-
-
3,239
Derivatives
 
-
24,419
-
-
24,419
Total assets measured
 
at fair value on a
recurring basis
$
3,952,895
$
12,869,950
$
121,499
$
310
$
16,944,654
Liabilities
 
 
 
Derivatives
$
-
$
(21,103)
$
-
$
-
$
(21,103)
Total liabilities measured
 
at fair value on a
recurring basis
$
-
$
(21,103)
$
-
$
-
$
(21,103)
Beginning in the first quarter of 2023, the Corporation has elected the fair value option for
 
newly originated mortgage loans held-for-
sale. This election better aligns with the management
 
of the portfolio from a business perspective.
 
Loans held-for-sale measured at fair value
 
Loans held-for-sale measured at fair value were priced
 
based on secondary market prices. These loans
 
are classified as Level 2.
The
 
following
 
tables summarize
 
the difference
 
between the
 
aggregate fair
 
value
 
and the
 
aggregate unpaid
 
principal
 
balance
 
for
mortgage loans originated as held-for-sale measured
 
at fair value as of March 31, 2024 and December
 
31, 2023.
 
 
 
 
 
 
(In thousands)
March 31, 2024
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
5,352
$
5,285
$
67
 
 
 
 
 
 
(In thousands)
December 31, 2023
Aggregate Unpaid
Fair Value
Principal Balance
Difference
Loans held for sale
$
3,239
$
3,202
$
37
No
 
loans held-for-sale were 90 or more days past
 
due or on nonaccrual status as of March 31,
 
2024 and December 31, 2023.
For the quarter
 
ended March 31, 2024,
 
changes in the
 
fair value of
 
mortgage loans held-for-sale for
 
which the Corporation
 
elected
the fair value option, were not considered material.
The fair value information included in the following
 
tables is not as of period end, but as
 
of the date that the fair value measurement
was recorded during the quarters ended March 31,
 
2024 and 2023 and excludes nonrecurring
 
fair value measurements of assets no
longer outstanding as of the reporting date.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended March 31, 2024
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
110
$
110
$
(2,172)
Other real estate owned
[2]
-
-
1,416
1,416
(224)
Other foreclosed assets
[2]
-
-
105
105
(41)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
1,631
$
1,631
$
(2,437)
[1] Relates mainly 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. Costs to sell are
excluded from the reported fair value amount.
[2] Represents the fair value of foreclosed real estate and
 
other collateral owned that were written down to their fair
 
value. Costs to sell are
excluded from the reported fair value amount.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended March 31, 2023
(In thousands)
Level 1
Level 2
Level 3
Total
NONRECURRING FAIR VALUE
 
MEASUREMENTS
Assets
 
 
 
 
 
Write-downs
Loans
[1]
$
-
$
-
$
1,629
$
1,629
$
(3)
Other real estate owned
[2]
-
-
2,330
2,330
(628)
Other foreclosed assets
[2]
-
-
15
15
(4)
Total assets measured
 
at fair value on a nonrecurring basis
$
-
$
-
$
3,974
$
3,974
$
(635)
[1] Relates mainly 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. Costs to sell are
excluded from the reported fair value amount.
[2] Represents the fair value of foreclosed real estate and
 
other collateral owned that were written down to their fair
 
value. Costs to sell are
excluded from the reported fair value amount.
The following tables present the changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the quarters
ended March 31, 2024 and 2023.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended March 31, 2024
MBS
Other
CMOs
MBS
Other
classified
securities
classified
classified
securities
as debt
classified as
 
as trading
as trading
classified
securities
 
debt securities
account
account
as trading
Mortgage
available-
available-
 
debt
 
debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at December 31, 2023
$
606
$
2,500
$
5
$
112
$
167
$
118,109
$
121,499
Gains (losses) included in earnings
-
(500)
-
-
(1)
(3,439)
(3,940)
Gains (losses) included in OCI
1
-
-
-
-
-
1
Additions
-
-
-
-
-
294
294
Settlements
-
-
(5)
(28)
-
-
(33)
Balance at March 31, 2024
$
607
$
2,000
$
-
$
84
$
166
$
114,964
$
117,821
Changes in unrealized gains (losses) included
in earnings relating to assets still held at March
31, 2024
$
-
$
(500)
$
-
$
-
$
2
$
(1,202)
$
(1,700)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter ended March 31, 2023
MBS
Other
Other
classified
securities
CMOs
MBS
securities
as debt
classified as
classified
classified
classified
securities
debt securities
as trading
as trading
as trading
Mortgage
available-
available-
account debt
account debt
account debt
servicing
Total
(In thousands)
for-sale
for-sale
securities
securities
securities
rights
assets
Balance at December 31, 2022
$
711
$
1,000
$
113
$
215
$
207
$
128,350
$
130,596
Gains (losses) included in earnings
-
-
-
(1)
(8)
(1,376)
(1,385)
Gains (losses) included in OCI
(6)
-
-
-
-
-
(6)
Additions
-
-
-
-
-
501
501
Settlements
(50)
-
(25)
(26)
-
-
(101)
Balance at March 31, 2023
$
655
$
1,000
$
88
$
188
$
199
$
127,475
$
129,605
Changes in unrealized gains (losses)
included in earnings relating to assets
still held at March 31, 2023
$
-
$
-
$
-
$
-
$
9
$
1,286
$
1,295
Gains and losses (realized and unrealized) included in earnings for the quarters ended March 31, 2024 and 2023 for
 
Level 3 assets
and liabilities included in the previous tables
 
are reported in the consolidated statements of
 
operations as follows:
 
 
 
 
 
 
 
 
Quarter ended March 31, 2024
Quarter ended March 31, 2023
Changes in unrealized
Changes in unrealized
Total gains
gains (losses) relating to
Total gains
gains (losses) relating to
(losses) included
assets still held at
(losses) included
assets still held at
(In thousands)
in earnings
reporting date
in earnings
reporting date
Mortgage banking activities
$
(3,439)
$
(1,202)
$
(1,376)
$
1,286
Trading account (loss) profit
(1)
2
(9)
9
Provision for credit losses
(500)
(500)
-
-
Total
 
$
(3,940)
$
(1,700)
$
(1,385)
$
1,295
The following
 
tables include
 
quantitative information
 
about significant
 
unobservable inputs
 
used to
 
derive the
 
fair value
 
of Level
 
3
instruments, excluding those instruments
 
for which the
 
unobservable inputs were not
 
developed by the
 
Corporation such as
 
prices
of prior transactions and/or unadjusted third-party pricing
 
sources at March 31, 2024 and 2023.
 
 
 
 
 
 
 
 
 
 
 
Fair value at
 
March 31,
(In thousands)
2024
Valuation technique
Unobservable inputs
Weighted average (range) [1]
Other - trading
$
166
Discounted cash flow model
Weighted average life
2.3
 
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
110
[2]
External appraisal
Haircut applied on
external appraisals
10.0%
[1]
 
Weighted average of significant unobservable inputs
 
used to develop Level 3 fair value measurements
 
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
 
to external appraisals were excluded from this table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value at
 
March 31,
(In thousands)
2023
Valuation technique
Unobservable inputs
Weighted average (range) [1]
CMO's - trading
$
88
Discounted cash flow model
Weighted average life
0.3
 
years (
0.1
 
-
0.5
 
years)
Yield
4.9
% (
4.9
% -
5.4
%)
Prepayment speed
9.2
% (
8.3
% -
27.8
%)
Other - trading
$
199
Discounted cash flow model
Weighted average life
2.5
 
years
Yield
12.0%
Prepayment speed
10.8%
Loans held-in-portfolio
$
1,560
[2]
External appraisal
Haircut applied on
external appraisals
35
.0%
[1]
 
Weighted average of significant unobservable inputs
 
used to develop Level 3 fair value measurements
 
were calculated by relative fair value.
[2]
Loans held-in-portfolio in which haircuts were not applied
 
to external appraisals were excluded from this table.