v3.26.1
FAIR VALUE
 3 Months Ended
Mar. 31, 2026
FAIR VALUE [Abstract]  
FAIR VALUE
NOTE 14 –
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
significant unobservable
inputs, requiring significant judgment due to limited or no market activity.
See Note 19 –
“Fair Value,”
to the audited consolidated
financial statements included
in the 2025 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 ended March 31, 2026 and 2025.
Assets and liabilities measured at fair value on a recurring basis are summarized below as of
the indicated dates:
As of March 31, 2026
As of December 31, 2025
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
$
497,254
$
-
$
-
$
497,254
$
497,342
$
-
$
-
$
497,342
Noncallable U.S. agencies debt securities
-
277,130
-
277,130
-
336,849
-
336,849
Callable U.S. agencies debt securities
-
562,787
-
562,787
-
566,263
-
566,263
MBS
-
3,326,804
3,113
(1)
3,329,917
-
3,148,692
3,266
(1)
3,151,958
Puerto Rico government obligation
-
-
1,609
1,609
-
-
1,620
1,620
Equity securities
5,005
-
-
5,005
5,024
-
-
5,024
Derivative assets
-
350
-
350
-
345
-
345
Liabilities:
Derivative liabilities
-
162
-
162
-
200
-
200
(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 ended March 31, 2026 and 2025:
Quarter Ended March 31,
2026
2025
Level 3 Instruments Only
Securities Available
for Sale
(1)
Securities Available
for Sale
(1)
(In thousands)
Beginning balance
$
4,886
$
6,815
Total gain (losses):
Included in other comprehensive income (unrealized)
182
46
Included in earnings (unrealized)
(2)
(88)
5
Principal repayments and amortization
(258)
(233)
Ending balance
$
4,722
$
6,633
(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.
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:
March 31, 2026
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
3,113
Discounted cash flows
Discount rate
16.2%
16.2%
16.2%
Prepayment rate
1.6%
8.0%
2.5%
Projected cumulative loss rate
0.1%
12.5%
6.8%
Puerto Rico government obligation
$
1,609
Discounted cash flows
Discount rate
10.8%
10.8%
10.8%
Projected cumulative loss rate
23.6%
23.6%
23.6%
December 31, 2025
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale
debt securities:
Private label MBS
$
3,266
Discounted cash flows
Discount rate
15.9%
15.9%
15.9%
Prepayment rate
1.6%
8.0%
3.1%
Projected cumulative loss rate
0.1%
11.4%
5.5%
Puerto Rico government obligation
$
1,620
Discounted cash flows
Discount rate
10.8%
10.8%
10.8%
Projected cumulative loss rate
24.0%
24.0%
24.0%
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.
Additionally, fair value
is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.
For the quarters ended March 31, 2026 and 2025, the Corporation recorded
losses or valuation adjustments for assets recognized at
fair value on a non-recurring basis and still held at the respective reporting dates,
as shown in the following table:
Carrying value as of March 31,
Related to losses recorded for the Quarter Ended
March 31,
2026
2025
2026
2025
(In thousands)
Level 3:
Loans receivable
(1)
$
3,970
$
4,647
$
(436)
$
(164)
OREO
(2)
119
335
(6)
(24)
(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.
The adjustment applied to
appraisals was
3
% for the quarter
ended March 31, 2026
and
22
% for the
quarter ended March 31, 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
adjustment applied to
appraisals was
16
% for the
quarter ended March
31, 2026, and
from
2
% to
24
% for the quarter ended March 31, 2025.
See Note 19 –
“Fair Value,”
to the audited
consolidated financial statements
included in the
2025 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 March 31, 2026
Fair Value Estimate as
of
March 31, 2026
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
cost)
$
550,899
$
550,899
$
550,899
$
-
$
-
Available-for-sale debt
securities (fair value)
4,668,697
4,668,697
497,254
4,166,721
4,722
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
257,522
Less: ACL on held-to-maturity debt securities
(641)
Held-to-maturity debt securities, net of ACL
$
256,881
253,485
-
171,353
82,132
Equity securities (amortized cost)
41,427
41,427
-
41,427
(1)
-
Other equity securities (fair value)
5,005
5,005
5,005
-
-
Loans held for sale (lower of cost or market)
12,805
13,006
-
13,006
-
Loans held for investment:
Loans held for investment (amortized cost)
13,091,077
Less: ACL for loans and finance leases
(245,060)
Loans held for investment, net of ACL
$
12,846,017
12,773,439
-
-
12,773,439
MSRs (amortized cost)
22,880
40,485
-
-
40,485
Derivative assets (fair value) (2)
350
350
-
350
-
Liabilities:
Deposits (amortized cost)
$
16,595,821
$
16,600,047
$
-
$
16,600,047
$
-
Short-term advances from the FHLB (amortized cost)
90,000
90,001
-
90,001
-
Long-term advances from the FHLB (amortized cost)
200,000
201,168
-
201,168
-
Derivative liabilities (fair value) (2)
162
162
-
162
-
(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, 2025
Fair Value Estimate as
of
December 31, 2025
Level 1
Level 2
Level 3
(In thousands)
Assets:
Cash and due from banks and money market investments (amortized
cost)
$
658,599
$
658,599
$
658,599
$
-
$
-
Available-for-sale debt
securities (fair value)
4,554,032
4,554,032
497,342
4,051,804
4,886
Held-to-maturity debt securities:
Held-to-maturity debt securities (amortized cost)
265,296
Less: ACL on held-to-maturity debt securities
(733)
Held-to-maturity debt securities, net of ACL
$
264,563
262,055
-
178,815
83,240
Equity securities (amortized cost)
39,729
39,729
-
39,729
(1)
-
Other equity securities (fair value)
5,024
5,024
5,024
-
-
Loans held for sale (lower of cost or market)
16,697
16,996
-
16,996
-
Loans held for investment:
Loans held for investment (amortized cost)
13,125,356
Less: ACL for loans and finance leases
(249,037)
Loans held for investment, net of ACL
$
12,876,319
12,806,115
-
-
12,806,115
MSRs (amortized cost)
23,288
40,874
-
-
40,874
Derivative assets (fair value) (2)
345
345
-
345
-
Liabilities:
Deposits (amortized cost)
$
16,670,143
$
16,675,488
$
-
$
16,675,488
$
-
Long-term advances from the FHLB (amortized cost)
290,000
292,581
-
292,581
-
Derivative liabilities (fair value) (2)
200
200
-
200
-
(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.
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
judgments
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.