FIRST BANCORP /PR/FBP
FIRST BANCORP /PR/ Fair Value Disclosure
NOTE 19 – 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.
There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2 measurements during the years
ended December 31, 2025 and 2024.
Financial Instruments Recorded at Fair Value on a Recurring Basis
Available-for-sale debt securities and marketable equity securities held at fair value
and equity securities with readily determinable fair values), when available (Level 1), or market prices for comparable assets (as is the
case with U.S. agencies MBS and U.S. agency debt securities) that are based on observable market parameters, including benchmark
yields, reported trades, quotes from brokers or dealers, issuer spreads, bids, offers and reference data, including market research
operations, when available (Level 2). Observable prices in the market already consider the risk of nonperformance. If listed prices or
quotes are not available, fair value is based upon discounted cash flow models that use unobservable inputs due to the limited market
activity of the instrument, as is the case with certain private label MBS held by the Corporation (Level 3).
Derivative instruments
into consideration the credit risk component of paying counterparties, when appropriate. On interest rate caps, only the seller’s credit
risk is considered. The Corporation valued the interest rate swaps and caps using a discounted cash flow approach based on the related
reference rate for each cash flow.
Assets and liabilities measured at fair value on a recurring basis are summarized below as of the indicated dates:
As of December 31, 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:
U.S. Treasury securities
$
497,342
$
-
$
-
$
497,342
$
59,189
$
-
$
-
$
59,189
Noncallable U.S. agencies debt securities
-
336,849
-
336,849
-
533,296
-
533,296
Callable U.S. agencies debt securities
-
566,263
-
566,263
-
1,307,035
-
1,307,035
MBS
-
3,148,692
3,266
(1)
3,151,958
-
2,658,967
4,195
(1)
2,663,162
Puerto Rico government obligation
-
-
1,620
1,620
-
-
1,620
1,620
Other investments
-
-
-
-
-
-
1,000
1,000
5,024
-
-
5,024
4,886
-
-
4,886
Derivative assets
-
345
-
345
-
318
-
318
Liabilities:
Derivative liabilities
-
200
-
200
-
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 years ended December 31, 2025, 2024, and 2023:
(1)
Level 3 Instruments Only
2025
2024
2023
(In thousands)
Beginning balance
$
6,815
$
6,200
$
8,495
578
830
(750)
Included in earnings (unrealized) (2)
(254)
50
(20)
-
1,000
-
(3)
(2,253)
(1,265)
(1,525)
Ending balance
$
4,886
$
6,815
$
6,200
(1)
(2)
(3)
1.0
0.5
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:
December 31, 2025
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
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%
$
1,620
Discounted cash flows
Discount rate
10.8%
10.8%
10.8%
Projected cumulative loss rate
24.0%
24.0%
24.0%
December 31, 2024
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted
Average
Minimum
Maximum
(Dollars in thousands)
Available-for-sale debt securities:
$
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%
$
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 years ended December 31, 2025, 2024, and 2023, 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 December 31,
Related to losses recorded for the Year Ended
December 31,
2025
2024
2023
2025
2024
2023
(In thousands)
Level 3:
Loans receivable
(1)
$
9,212
$
16,296
$
15,609
$
(635)
$
(373)
$
(1,839)
OREO
(2) (3)
735
1,471
3,218
(66)
(100)
(416)
Level 2:
Loans held for sale
(4)
$
-
$
15,276
$
-
$
-
$
(78)
$
-
(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
22
% for the year ended December 31, 2025,
8
% for the year ended December 31, 2024, and between
16
% and
20
% for the year ended December 31,
2023.
(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 to appraisals ranged from
3
% to
5
% for the year ended December 31, 2025,
2
% to
44
% for the year ended December 31, 2024, and
1
% to
28
% for the year ended December 31,
2023.
(3)
Excludes the aforementioned $
2.8
Contingencies” for further details.
(4)
The Corporation derived the fair value of these loans based on published secondary market prices of MBS with similar characteristics.
Qualitative information regarding the financial instruments measured at fair value on a non-recurring basis using significant
unobservable inputs (Level 3) as of December 31, 2025 are as follows:
December 31, 2025
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
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 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:
265,296
(733)
$
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:
13,125,356
(249,037)
$
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
(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:
317,786
(802)
$
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:
12,746,556
(243,942)
$
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
(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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 14, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.