Investment securities

6 Months Ended

Jun. 30, 2011

Available-for-sale Securities

Investment securities

Note 7 – Investment securities available for sale

The following table presents the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at June 30, 2011, December 31, 2010 and June 30, 2010.

	At June 30, 2011
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
After 1 to 5 years	$	35,334	$	2,858	$	—	$	38,192		3.35	%
Total U.S. Treasury securities		35,334		2,858		—		38,192		3.35
Obligations of U.S. Government sponsored entities
Within 1 year		106,724		494		—		107,218		2.91
After 1 to 5 years		914,238		45,355		73		959,520		3.67
After 5 to 10 years		180,000		1,950		—		181,950		2.66
Total obligations of U.S. Government sponsored entities		1,200,962		47,799		73		1,248,688		3.45
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		10,845		12		—		10,857		3.96
After 1 to 5 years		15,567		277		24		15,820		4.52
After 5 to 10 years		2,055		25		—		2,080		5.30
After 10 years		5,430		79		—		5,509		5.29
Total obligations of Puerto Rico, States and political subdivisions		33,897		393		24		34,266		4.51
Collateralized mortgage obligations - federal agencies
After 1 to 5 years		2,728		93		—		2,821		4.67
After 5 to 10 years		78,595		1,077		339		79,333		2.45
After 10 years		1,489,248		41,876		216		1,530,908		2.95
Total collateralized mortgage obligations - federal agencies		1,570,571		43,046		555		1,613,062		2.93
Collateralized mortgage obligations - private label
After 5 to 10 years		7,224		3		308		6,919		0.72
After 10 years		68,472		—		4,905		63,567		2.27
Total collateralized mortgage obligations - private label		75,696		3		5,213		70,486		2.12
Mortgage - backed securities
Within 1 year		633		52		—		685		4.91
After 1 to 5 years		11,516		444		—		11,960		3.99
After 5 to 10 years		159,166		11,198		2		170,362		4.71
After 10 years		2,053,343		113,015		341		2,166,017		4.25
Total mortgage - backed securities		2,224,658		124,709		343		2,349,024		4.28
Equity securities (without contractual maturity)		7,795		748		278		8,265		3.44
Other
After 5 to 10 years		17,849		2,363		—		20,212		10.99
After 10 years		7,264		32		—		7,296		3.62
Total other		25,113		2,395		—		27,508		8.86
Total investment securities available-for-sale	$	5,174,026	$	221,951	$	6,486	$	5,389,491		3.66	%

	At December 31, 2010
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
After 1 to 5 years	$	7,001	$	122	$	—	$	7,123		1.50	%
After 5 to 10 years		28,676		2,337		—		31,013		3.81
Total U.S. Treasury securities		35,677		2,459		—		38,136		3.36
Obligations of U.S. Government sponsored entities
Within 1 year		153,738		2,043		—		155,781		3.39
After 1 to 5 years		1,000,955		53,681		661		1,053,975		3.72
After 5 to 10 years		1,512		36		—		1,548		6.30
Total obligations of U.S. Government sponsored entities		1,156,205		55,760		661		1,211,304		3.68
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		10,404		19		—		10,423		3.92
After 1 to 5 years		15,853		279		5		16,127		4.52
After 5 to 10 years		20,765		43		194		20,614		5.07
After 10 years		5,505		52		19		5,538		5.28
Total obligations of Puerto Rico, States and political subdivisions		52,527		393		218		52,702		4.70
Collateralized mortgage obligations - federal agencies
Within 1 year		77		1		—		78		3.88
After 1 to 5 years		1,846		105		—		1,951		4.77
After 5 to 10 years		107,186		1,507		936		107,757		2.50
After 10 years		1,096,271		32,248		11		1,128,508		2.87
Total collateralized mortgage obligations - federal agencies		1,205,380		33,861		947		1,238,294		2.84
Collateralized mortgage obligations - private label
After 5 to 10 years		10,208		31		158		10,081		1.20
After 10 years		79,311		78		4,532		74,857		2.29
Total collateralized mortgage obligations - private label		89,519		109		4,690		84,938		2.17
Mortgage - backed securities
Within 1 year		2,983		101		—		3,084		3.62
After 1 to 5 years		15,738		649		3		16,384		3.98
After 5 to 10 years		170,662		10,580		3		181,239		4.71
After 10 years		2,289,210		86,870		632		2,375,448		4.26
Total mortgage - backed securities		2,478,593		98,200		638		2,576,155		4.29
Equity securities (without contractual maturity)		8,722		855		102		9,475		3.43
Other
After 5 to 10 years		17,850		262		—		18,112		10.98
After 10 years		7,805		—		69		7,736		3.62
Total other		25,655		262		69		25,848		8.74
Total investment securities available-for-sale	$	5,052,278	$	191,899	$	7,325	$	5,236,852		3.78	%

	At June 30, 2010
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
After 1 to 5 years	$	107,776	$	1,311	$	—	$	109,087		1.47	%
After 5 to 10 years		29,023		2,577		—		31,600		3.80
Total U.S. Treasury securities		136,799		3,888		—		140,687		1.97
Obligations of U.S. Government sponsored entities
Within 1 year		384,536		5,504		—		390,040		3.52
After 1 to 5 years		1,254,234		65,786		—		1,320,020		3.41
After 5 to 10 years		11,928		83		—		12,011		5.30
After 10 years		26,887		517		—		27,404		5.68
Total obligations of U.S. Government sponsored entities		1,677,585		71,890		—		1,749,475		3.49
Obligations of Puerto Rico, States and political subdivisions
After 1 to 5 years		22,406		171		—		22,577		4.09
After 5 to 10 years		27,049		321		4		27,366		5.12
After 10 years		5,560		129		—		5,689		5.28
Total obligations of Puerto Rico, States and political subdivisions		55,015		621		4		55,632		4.72
Collateralized mortgage obligations - federal agencies
Within 1 year		159		3		—		162		4.06
After 1 to 5 years		4,714		136		—		4,850		4.61
After 5 to 10 years		98,717		1,507		88		100,136		2.65
After 10 years		1,310,206		32,005		2,341		1,339,870		2.93
Total collateralized mortgage obligations - federal agencies		1,413,796		33,651		2,429		1,445,018		2.92
Collateralized mortgage obligations - private label
After 5 to 10 years		16,737		21		522		16,236		2.08
After 10 years		92,212		116		6,577		85,751		2.37
Total collateralized mortgage obligations - private label		108,949		137		7,099		101,987		2.32
Mortgage - backed securities
Within 1 year		20,661		177		—		20,838		2.96
After 1 to 5 years		20,438		544		—		20,982		3.96
After 5 to 10 years		188,865		12,762		—		201,627		4.72
After 10 years		2,629,056		107,342		161		2,736,237		4.31
Total mortgage - backed securities		2,859,020		120,825		161		2,979,684		4.33
Equity securities		9,005		202		503		8,704		3.46
Total investment securities available-for-sale	$	6,260,169	$	231,214	$	10,196	$	6,481,187		3.70	%

The weighted average yield on investment securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

Proceeds from the sale of investment securities available-for-sale for the six months ended June 30, 2011 amounted to $19.1 million, with realized losses of $90 thousand. This compares with proceeds of $19.5 million for the six months ended June 30, 2010, with no realized gains or losses as the securities were sold at par value.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011, December 31, 2010 and June 30, 2010.

					At June 30, 2011
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of U.S. Government sponsored entities	$	9,927	$	73	$	—	$	—	$	9,927	$	73
Obligations of Puerto Rico, States and political subdivisions		9,983		17		300		7		10,283		24
Collateralized mortgage obligations - federal agencies		27,797		555		—		—		27,797		555
Collateralized mortgage obligations - private label		26,268		652		44,153		4,561		70,421		5,213
Mortgage-backed securities		31,685		89		9,154		254		40,839		343
Equity securities		2,846		182		53		96		2,899		278
Total investment securities available-for-sale in an unrealized loss position	$	108,506	$	1,568	$	53,660	$	4,918	$	162,166	$	6,486
					At December 31, 2010
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of U.S. Government sponsored entities	$	24,284	$	661	$	—	$	—	$	24,284	$	661
Obligations of Puerto Rico, States and political subdivisions		19,357		213		303		5		19,660		218
Collateralized mortgage obligations - federal agencies		40,212		945		2,505		2		42,717		947
Collateralized mortgage obligations - private label		21,231		292		52,302		4,398		73,533		4,690
Mortgage-backed securities		33,261		406		9,257		232		42,518		638
Equity securities		3		8		43		94		46		102
Other		7,736		69		—		—		7,736		69
Total investment securities available-for-sale in an unrealized loss position	$	146,084	$	2,594	$	64,410	$	4,731	$	210,494	$	7,325
					At June 30, 2010
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
			Unrealized				Unrealized				Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
Obligations of Puerto Rico, States and political subdivisions	$	—	$	—	$	305	$	4	$	305	$	4
Collateralized mortgage obligations - federal agencies		138,856		1,915		114,113		514		252,969		2,429
Collateralized mortgage obligations - private label		200		8		84,564		7,091		84,764		7,099
Mortgage-backed securities		8,174		109		1,465		52		9,639		161
Equity securities		22		18		7,191		485		7,213		503
Total investment securities available-for-sale in an unrealized loss position	$	147,252	$	2,050	$	207,638	$	8,146	$	354,890	$	10,196

Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security’s carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management’s intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

At June 30, 2011, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At June 30, 2011, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis. Also, management evaluated the Corporation’s portfolio of equity securities at June 30, 2011. During the quarter ended June 30, 2011, the Corporation did not record any other-than-temporary impairment losses on equity securities. Management has the intent and ability to hold the investments in equity securities that are at a loss position at June 30, 2011, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

The unrealized losses associated with “Collateralized mortgage obligations – private label” are primarily related to securities backed by residential mortgages. In addition to verifying the credit ratings for the private-label CMOs, management analyzed the underlying mortgage loan collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO, including among others, the weighted average loan-to-value, FICO score, and delinquency and foreclosure rates of the underlying assets in the securities. At June 30, 2011, there were no “sub-prime” securities in the Corporation’s private-label CMOs portfolios. For private-label CMOs with unrealized losses at June 30, 2011, credit impairment was assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows through the current period and then projects the expected cash flows using a number of assumptions, including default rates, loss severity and prepayment rates. Management’s assessment also considered tests using more stressful parameters. Based on the assessments, management concluded that the tranches of the private-label CMOs held by the Corporation were not other-than-temporarily impaired at June 30, 2011, thus management expects to recover the amortized cost basis of the securities.

The following table states the name of issuers, and the aggregate amortized cost and fair value of the securities of such issuer (includes available-for-sale and held-to-maturity securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders’ equity. This information excludes securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

	June 30, 2011				December 31, 2010				June 30, 2010
(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
FNMA	$	1,008,700	$	1,045,160	$	757,812	$	789,838	$	963,714	$	996,966
FHLB		813,337		855,844		1,003,395		1,056,549		1,418,562		1,486,376
Freddie Mac		959,192		983,969		637,644		654,495		624,844		638,388

Held-to-maturity Securities

Investment securities

Note 8 – Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity at June 30, 2011, December 31, 2010 and June 30, 2010.

	At June 30, 2011
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
Within 1 year	$	12,362	$	1	$	—	$	12,363		0.09	%
Total U.S. Treasury securities		12,362		1		—		12,363		0.09
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,235		22		—		2,257		5.56
After 1 to 5 years		15,974		495		—		16,469		4.19
After 5 to 10 years		18,340		393		78		18,655		5.97
After 10 years		54,333		6,764		914		60,183		4.12
Total obligations of Puerto Rico, States and political subdivisions		90,882		7,674		992		97,564		4.54
Collateralized mortgage obligations - private label
After 10 years		166		—		9		157		5.43
Total collateralized mortgage obligations - private label		166		—		9		157		5.43
Other
Within 1 year		1,250		—		—		1,250		0.88
After 1 to 5 years		25,250		375		—		25,625		3.47
Total other		26,500		375		—		26,875		3.35
Total investment securities held-to-maturity	$	129,910	$	8,050	$	1,001	$	136,959		3.87	%
	At December 31, 2010
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
Within 1 year	$	25,873	$	—	$	1	$	25,872		0.11	%
Total U.S. Treasury securities		25,873		—		1		25,872		0.11
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		2,150		6		—		2,156		5.33
After 1 to 5 years		15,529		333		—		15,862		4.10
After 5 to 10 years		17,594		115		268		17,441		5.96
After 10 years		56,702		—		1,649		55,053		4.25
Total obligations of Puerto Rico, States and political subdivisions		91,975		454		1,917		90,512		4.58
Collateralized mortgage obligations - private label
After 10 years		176		—		10		166		5.45
Total collateralized mortgage obligations - private label		176		—		10		166		5.45
Other
Within 1 year		4,080		—		—		4,080		1.15
After 1 to 5 years		250		—		7		243		1.20
Total other		4,330		—		7		4,323		1.15
Total investment securities held-to-maturity	$	122,354	$	454	$	1,935	$	120,873		3.51	%

	At June 30, 2010
			Gross		Gross				Weighted
	Amortized		Unrealized		Unrealized				Average
(In thousands)	Cost		Gains		Losses		Fair Value		Yield
U.S. Treasury securities
Within 1 year	$	25,797	$	4	$	—	$	25,801		0.22	%
Total U.S. Treasury securities		25,797		4		—		25,801		0.22
Obligations of Puerto Rico, States and political subdivisions
Within 1 year		7,110		13		—		7,123		2.12
After 1 to 5 years		109,820		509		—		110,329		5.52
After 5 to 10 years		17,808		289		75		18,022		5.94
After 10 years		46,050		63		1,000		45,113		3.88
Total obligations of Puerto Rico, States and political subdivisions		180,788		874		1,075		180,587		5.01
Collateralized mortgage obligations - private label
After 10 years		209		—		12		197		5.45
Total collateralized mortgage obligations - private label		209		—		12		197		5.45
Other
Within 1 year		1,372		—		—		1,372		1.91
After 1 to 5 years		1,250		—		—		1,250		0.84
Total other		2,622		—		—		2,622		1.40
Total investment securities held-to-maturity	$	209,416	$	878	$	1,087	$	209,207		4.38	%

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following tables present the Corporation’s fair value and gross unrealized losses of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2011, December 31, 2010 and June 30, 2010:

	At June 30, 2011
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	Value		Losses		Value		Losses		Value		Losses
Obligations of Puerto Rico, States and political subdivisions	$	15,820	$	270	$	31,108	$	722	$	46,928	$	992
Collateralized mortgage obligations - private label		—		—		157		9		157		9
Total investment securities held-to-maturity in an unrealized loss position	$	15,820	$	270	$	31,265	$	731	$	47,085	$	1,001
	At December 31, 2010
	Less than 12 months				12 months or more				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	25,872	$	1	$	—	$	—	$	25,872	$	1
Obligations of Puerto Rico, States and political subdivisions		51,995		1,915		773		2		52,768		1,917
Collateralized mortgage obligations- private label		—		—		166		10		166		10
Other		243		7		—		—		243		7
Total investment securities held-to-maturity in an unrealized loss position	$	78,110	$	1,923	$	939	$	12	$	79,049	$	1,935

	At June 30, 2010
	Less than 12 months				12 months or more				Total
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Obligations of Puerto Rico, States and political subdivisions	$	—	$	—	$	45,460	$	1,075	$	45,460	$	1,075
Collateralized mortgage obligations - private label		—		—		197		12		197		12
Total investment securities held-to-maturity in an unrealized loss position	$	—	$	—	$	45,657	$	1,087	$	45,657	$	1,087

As indicated in Note 7 to these consolidated financial statements, management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at June 30, 2011 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. The Corporation performs periodic credit quality reviews on these issuers. The decline in fair value at June 30, 2011 was attributable to changes in interest rates and not credit quality, thus no other-than-temporary decline in value was necessary to be recorded in these held-to-maturity securities at June 30, 2011. At June 30, 2011, the Corporation does not have the intent to sell securities held-to-maturity and it is not more likely than not that the Corporation will have to sell these investment securities prior to recovery of their amortized cost basis.