Investment securities

12 Months Ended

Dec. 31, 2015

Note 10 – 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 December 31, 2015 and 2014.

		At December 31, 2015
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	Within 1 year	$	24,861	$	335	$	-	$	25,196	4.31	%
	After 1 to 5 years		1,149,807		365		1,999		1,148,173	1.03
	After 5 to 10 years		9,937		22		-		9,959	1.99
Total U.S. Treasury securities			1,184,605		722		1,999		1,183,328	1.11
Obligations of U.S. Government sponsored entities
	After 1 to 5 years		919,819		1,337		4,808		916,348	1.33
	After 5 to 10 years		250		1		-		251	5.64
	After 10 years		23,000		42		-		23,042	3.22
Total obligations of U.S. Government sponsored entities			943,069		1,380		4,808		939,641	1.38
Obligations of Puerto Rico, States and political subdivisions
	After 1 to 5 years		7,227		-		199		7,028	3.94
	After 5 to 10 years		5,925		-		2,200		3,725	4.02
	After 10 years		18,585		-		6,979		11,606	6.99
Total obligations of Puerto Rico, States and political subdivisions			31,737		-		9,378		22,359	5.74
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		21,446		594		37		22,003	2.81
	After 5 to 10 years		44,585		733		-		45,318	2.85
	After 10 years		1,518,662		8,137		33,283		1,493,516	1.99
Total collateralized mortgage obligations - federal agencies			1,584,693		9,464		33,320		1,560,837	2.02
Mortgage-backed securities
	After 1 to 5 years		22,015		987		8		22,994	4.65
	After 5 to 10 years		256,097		4,866		1,197		259,766	2.51
	After 10 years		2,039,217		34,839		12,620		2,061,436	2.83
Total mortgage-backed securities			2,317,329		40,692		13,825		2,344,196	2.81
Equity securities (without contractual maturity)			1,350		1,053		5		2,398	7.92
Other
	After 1 to 5 years		8,911		-		28		8,883	1.71
	After 5 to 10 years		1,311		39		-		1,350	3.62
Total other			10,222		39		28		10,233	1.95
Total investment securities available-for-sale		$	6,073,005	$	53,350	$	63,363	$	6,062,992	2.07	%

		At December 31, 2014
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	After 1 to 5 years	$	698,003	$	2,226	$	75	$	700,154	1.14	%
Total U.S. Treasury securities			698,003		2,226		75		700,154	1.14
Obligations of U.S. Government sponsored entities
	Within 1 year		42,140		380		-		42,520	1.61
	After 1 to 5 years		1,603,245		1,168		9,936		1,594,477	1.26
	After 5 to 10 years		67,373		58		2,271		65,160	1.72
	After 10 years		23,000		-		184		22,816	3.18
Total obligations of U.S. Government sponsored entities			1,735,758		1,606		12,391		1,724,973	1.31
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year		2,765		17		-		2,782	3.83
	After 1 to 5 years		1,024		38		-		1,062	8.40
	After 5 to 10 years		22,552		2		2,331		20,223	5.82
	After 10 years		48,823		40		11,218		37,645	6.22
Total obligations of Puerto Rico, States and political subdivisions			75,164		97		13,549		61,712	6.04
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		3,687		87		-		3,774	2.66
	After 5 to 10 years		25,202		985		-		26,187	2.93
	After 10 years		1,905,763		13,109		38,803		1,880,069	2.03
Total collateralized mortgage obligations - federal agencies			1,934,652		14,181		38,803		1,910,030	2.04
Mortgage-backed securities
	After 1 to 5 years		27,339		1,597		-		28,936	4.68
	After 5 to 10 years		147,182		7,314		1		154,495	3.51
	After 10 years		676,567		45,047		683		720,931	3.93
Total mortgage-backed securities			851,088		53,958		684		904,362	3.88
Equity securities (without contractual maturity)			1,351		1,271		-		2,622	5.03
Other
	After 1 to 5 years		9,277		10		-		9,287	1.69
	After 5 to 10 years		1,957		62		-		2,019	3.63
Total other			11,234		72		-		11,306	2.03
Total investment securities available-for-sale		$	5,307,250	$	73,411	$	65,502	$	5,315,159	2.04	%

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.

The following table presents the aggregate amortized cost and fair value of investment securities available-for-sale at December 31, 2015 by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	24,861	$	25,196
After 1 to 5 years		2,129,225		2,125,429
After 5 to 10 years		318,105		320,369
After 10 years		3,599,464		3,589,600
Total		6,071,655		6,060,594
Equity securities		1,350		2,398
Total investment securities available-for-sale	$	6,073,005	$	6,062,992

During the year ended December 31, 2015, the Corporation sold U.S. agency securities and obligations from the Puerto Rico government and its political subdivisions. The proceeds from these sales were $ 96.8 million. During the year ended December 31, 2014, the Corporation sold U.S. agency securities, mortgage-backed securities and collateralized mortgage obligations with an approximate amortized cost of $311.1 million. The proceeds from these sales were $ 310.2 million. Gross realized gains and losses on the sale of investment securities available-for-sale, for the years ended December 31, 2015, 2014 and 2013 were as follows:

	Years ended December 31,
(In thousands)		2015		2014		2013
Gross realized gains	$	226	$	4,461	$	2,110
Gross realized losses		(85)		(5,331)		-
Net realized gains (losses) on sale of investment securities available-for-sale	$	141	$	(870)	$	2,110

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 December 31, 2015, and 2014.

		At December 31, 2015
		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		$	589,689	$	1,999	$	-	$	-	$	589,689	$	1,999
Obligations of U.S. Government sponsored entities			390,319		2,128		181,744		2,680		572,063		4,808
Obligations of Puerto Rico, States and political
	subdivisions		884		164		19,490		9,214		20,374		9,378
Collateralized mortgage obligations - federal agencies			331,501		4,446		814,195		28,874		1,145,696		33,320
Mortgage-backed securities			1,641,663		12,992		22,362		833		1,664,025		13,825
Equity securities			45		5		-		-		45		5
Other			8,883		28		-		-		8,883		28
Total investment securities available-for-sale in an
	unrealized loss position	$	2,962,984	$	21,762	$	1,037,791	$	41,601	$	4,000,775	$	63,363

		At December 31, 2014
		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		$	49,465	$	75	$	-	$	-	$	49,465	$	75
Obligations of U.S. Government sponsored entities			888,325		6,866		429,835		5,525		1,318,160		12,391
Obligations of Puerto Rico, States and political
	subdivisions		14,419		3,031		41,084		10,518		55,503		13,549
Collateralized mortgage obligations - federal agencies			539,658		13,774		733,814		25,029		1,273,472		38,803
Mortgage-backed securities			457		4		25,486		680		25,943		684
Total investment securities available-for-sale in an
	unrealized loss position	$	1,492,324	$	23,750	$	1,230,219	$	41,752	$	2,722,543	$	65,502

As of December 31, 2015, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $63 million, driven by U.S. Agency collateralized mortgage obligations, mortgage-backed securities and obligations of the Puerto Rico Government and its political subdivisions. As part of its analysis for all U.S. Agencies’ securities, management considers the U.S. Agency guarantee. The portfolio of obligations of the Puerto Rico Government is mostly comprised of securities with specific sources of income or revenues identified for repayments. The Corporation performs periodic credit quality reviews on these issuers.

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 December 31, 2015, management performed its quarterly analysis of all debt securities in an unrealized loss position.

During the second quarter of 2015, the Corporation recognized an other-than-temporary impairment charge of $14.4 million on its portfolio of investment securities available-for-sale classified as obligations from the Puerto Rico government and its political subdivisions. At June 30, 2015 these securities were rated Caa2 and CCC- by Moody’s and S&P, respectively. Notwithstanding the payment priorities established by the Puerto Rico Constitution for these securities, Puerto Rico’s fiscal and economic situation, together with the Government’s announcements regarding its ability to pay its debt and its intention to pursue a comprehensive debt restructuring, led management to conclude that the unrealized losses on these government securities were other-than-temporary. The Corporation determined that the entire balance of the unrealized loss carried by these securities was attributed to estimated credit losses. Accordingly, the other-than-temporary impairment was recognized in its entirety in the accompanying consolidated statement of operations and no amount remained recognized in the accompanying statement of other comprehensive income related to these specific securities. These securities, for which an other-than-temporary impairment was recorded, were sold during the third quarter of 2015, resulting in a realized gain of $0.1 million. The proceeds from this sale were $26.8 million.

Further negative evidence impacting the liquidity and sources of repayment of the obligations of Puerto Rico and its political subdivisions, could result in a further charge to earnings to recognize estimated credit losses determined to be other-than-temporary. At December 31, 2015, 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.

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.

		2015				2014

(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	2,649,860	$	2,633,899	$	1,746,807	$	1,736,987
FHLB		340,119		338,700		737,149		732,894
Freddie Mac		1,088,691		1,079,956		1,117,865		1,112,485

Held To Maturity Securities Member

Investment

Note 11 – 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 December 31, 2015 and 2014.

		At December 31, 2015
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year	$	2,920	$	-	$	291	$	2,629	5.90	%
	After 1 to 5 years		13,655		-		5,015		8,640	5.98
	After 5 to 10 years		20,020		-		8,020		12,000	6.14
	After 10 years		62,222		3,604		8,280		57,546	2.08
Total obligations of Puerto Rico, States and political subdivisions			98,817		3,604		21,606		80,815	3.55
Collateralized mortgage obligations - federal agencies
	After 5 to 10 years		86		5		-		91	5.45
Total collateralized mortgage obligations - federal agencies			86		5		-		91	5.45
Other
	After 1 to 5 years		2,000		-		17		1,983	1.81
Total other			2,000		-		17		1,983	1.81
Total investment securities held-to-maturity		$	100,903	$	3,609	$	21,623	$	82,889	3.52	%

		At December 31, 2014
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year	$	2,740	$	-	$	8	$	2,732	5.84	%
	After 1 to 5 years		12,830		-		764		12,066	5.95
	After 5 to 10 years		21,325		-		6,003		15,322	6.09
	After 10 years		64,678		3,342		5,543		62,477	2.22
Total obligations of Puerto Rico, States and political subdivisions			101,573		3,342		12,318		92,597	3.60
Collateralized mortgage obligations - federal agencies
	After 5 to 10 years		97		5		-		102	5.45
Total collateralized mortgage obligations - federal agencies			97		5		-		102	5.45
Other
	Within 1 year		250		-		-		250	1.33
	After 1 to 5 years		1,250		-		-		1,250	1.10
Total other			1,500		-		-		1,500	1.14
Total investment securities held-to-maturity		$	103,170	$	3,347	$	12,318	$	94,199	3.57	%

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 table presents the aggregate amortized cost and fair value of investments securities held-to-maturity at December 31, 2015 by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	2,920	$	2,629
After 1 to 5 years		15,655		10,623
After 5 to 10 years		20,106		12,091
After 10 years		62,222		57,546
Total investment securities held-to-maturity	$	100,903	$	82,889

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 December 31, 2015 and 2014:

		At December 31, 2015
		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		$	-	$	-	$	33,334	$	21,606	$	33,334	$	21,606
Other			1,483		17		-		-		1,483		17
Total investment securities held-to-maturity in an unrealized
	loss position	$	1,483	$	17	$	33,334	$	21,606	$	34,817	$	21,623

		At December 31, 2014
		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		$	373	$	2	$	45,969	$	12,316	$	46,342	$	12,318
Total investment securities held-to-maturity in an unrealized
	loss position	$	373	$	2	$	45,969	$	12,316	$	46,342	$	12,318

As indicated in Note 10 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at December 31, 2015 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $57 million of securities issued by three municipalities of Puerto Rico that are payable from the real and personal property taxes collected within such municipalities. These bonds have seniority to the payment of operating cost and expenses of the municipality. The portfolio also includes approximately $42 million in securities for which the underlying source of payment is not the central government, but in which it provides a guarantee in the event of default.

The Corporation performs periodic credit quality reviews on these issuers. 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.