Investment securities

12 Months Ended

Dec. 31, 2016

Note 8 – 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, 2016 and 2015.

		At December 31, 2016
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	Within 1 year	$	844,002	$	1,254	$	28	$	845,228	1.00	%
	After 1 to 5 years		1,300,729		214		9,551		1,291,392	1.11
Total U.S. Treasury securities			2,144,731		1,468		9,579		2,136,620	1.06
Obligations of U.S. Government sponsored entities
	Within 1 year		100,050		102		-		100,152	0.98
	After 1 to 5 years		613,293		710		2,505		611,498	1.38
	After 5 to 10 years		200		-		-		200	5.64
Total obligations of U.S. Government sponsored entities			713,543		812		2,505		711,850	1.32
Obligations of Puerto Rico, States and political subdivisions
	After 1 to 5 years		6,419		-		161		6,258	2.89
	After 5 to 10 years		5,000		-		1,550		3,450	3.80
	After 10 years		17,605		-		4,542		13,063	7.09
Total obligations of Puerto Rico, States and political subdivisions			29,024		-		6,253		22,771	5.60
Collateralized mortgage obligations - federal agencies
	Within 1 year		13		-		-		13	1.23
	After 1 to 5 years		18,524		429		28		18,925	2.89
	After 5 to 10 years		39,178		428		61		39,545	2.68
	After 10 years		1,180,686		6,313		23,956		1,163,043	1.99
Total collateralized mortgage obligations - federal agencies			1,238,401		7,170		24,045		1,221,526	2.02
Mortgage-backed securities
	Within 1 year		55		1		-		56	4.76
	After 1 to 5 years		19,960		537		43		20,454	3.86
	After 5 to 10 years		317,185		3,701		1,721		319,165	2.29
	After 10 years		3,805,675		28,772		68,790		3,765,657	2.47
Total mortgage-backed securities			4,142,875		33,011		70,554		4,105,332	2.46
Equity securities (without contractual maturity)			1,246		876		-		2,122	7.94
Other
	Within 1 year		8,539		11		-		8,550	1.78
	After 5 to 10 years		1,004		31		-		1,035	3.62
Total other			9,543		42		-		9,585	1.97
Total investment securities available-for-sale^[1]		$	8,279,363	$	43,379	$	112,936	$	8,209,806	1.94	%
[1]Includes $4.1 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $3.4 billion serve as collateral for public funds.

		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^[1]		$	6,073,005	$	53,350	$	63,363	$	6,062,992	2.07	%
[1]Includes $2.4 billion pledged to secure public and trust deposits, assets sold under agreements to repurchase, credit facilities and loan servicing agreements that the secured parties are not permitted to sell or repledge the collateral, of which $1.5 billion serve as collateral for public funds.

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, 2016 by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	952,659	$	953,999
After 1 to 5 years		1,958,925		1,948,527
After 5 to 10 years		362,567		363,395
After 10 years		5,003,966		4,941,763
Total		8,278,117		8,207,684
Equity securities		1,246		2,122
Total investment securities available-for-sale	$	8,279,363	$	8,209,806

During the year ended December 31, 2016, the Corporation sold mortgage-backed securities, equity securities and obligations from the Puerto Rico government and its political subdivisions. The proceeds from these sales were $ 5.3 million. 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. Gross realized gains and losses on the sale of investment securities available-for-sale, for the years ended December 31, 2016, 2015 and 2014 were as follows:

	Years ended December 31,
(In thousands)		2016		2015		2014
Gross realized gains	$	378	$	226	$	4,461
Gross realized losses		-		(85)		(5,331)
Net realized gains (losses) on sale of investment securities available-for-sale	$	378	$	141	$	(870)

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, 2016, and 2015.

		At December 31, 2016
		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		$	1,162,110	$	9,579	$	-	$	-	$	1,162,110	$	9,579
Obligations of U.S. Government sponsored entities			430,273		2,426		3,126		79		433,399		2,505
Obligations of Puerto Rico, States and political
	subdivisions		6,258		161		16,512		6,092		22,770		6,253
Collateralized mortgage obligations - federal agencies			505,503		8,112		339,236		15,933		844,739		24,045
Mortgage-backed securities			3,537,606		70,173		15,113		381		3,552,719		70,554
Total investment securities available-for-sale in an
	unrealized loss position	$	5,641,750	$	90,451	$	373,987	$	22,485	$	6,015,737	$	112,936

		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

As of December 31, 2016, the available-for-sale investment portfolio reflects gross unrealized losses of approximately $113 million, driven by Mortgage backed securities and Collateralized mortgage obligations.

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, 2016, 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. During the quarter ended June 30, 2016 the Corporation recognized an other-than-temporary impairment charge of $209 thousand on an investment security available-for-sale classified as obligations from the Puerto Rico government and its political subdivisions, which at June 30, 2016 was rated Caa2 and CC by Moody’s and S&P, respectively. Puerto Rico’s fiscal and economic situation, together with, among other factors, the recent moratorium declared on the payment of principal and interest on obligations for certain Puerto Rico government securities, including those issued or guaranteed by the Commonwealth, led management to conclude that the unrealized losses on this security was other-than-temporary. The Corporation determined that the entire balance of the unrealized loss carried by this security was attributed to estimated credit losses. Accordingly, during the quarter ended June 30, 2016 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 this specific security. The security, for which an other-than-temporary impairment was recorded, was sold during the fourth quarter of 2016, resulting in a realized gain of $30 thousand. The proceeds from this sale were $882 thousand.

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 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.

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.

		2016				2015

(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	3,255,844	$	3,211,443	$	2,649,860	$	2,633,899
Freddie Mac		1,381,197		1,361,933		1,088,691		1,079,956

Held To Maturity Securities Member

Investment

Note 9 – 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, 2016 and 2015.

		At December 31, 2016
				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	$	3,105	$	-	$	1,240	$	1,865	5.90	%
	After 1 to 5 years		14,540		-		5,957		8,583	6.02
	After 5 to 10 years		18,635		-		7,766		10,869	6.20
	After 10 years		59,747		1,368		8,892		52,223	1.91
Total obligations of Puerto Rico, States and political subdivisions			96,027		1,368		23,855		73,540	3.49
Collateralized mortgage obligations - federal agencies
	After 5 to 10 years		74		4		-		78	5.45
Total collateralized mortgage obligations - federal agencies			74		4		-		78	5.45
Other
	Within 1 year		1,000		-		3		997	1.65
	After 1 to 5 years		1,000		-		39		961	2.44
Total other			2,000		-		42		1,958	2.05
Total investment securities held-to-maturity^[1]		$	98,101	$	1,372	$	23,897	$	75,576	3.46	%
[1]Includes $53.1 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

		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^[1]		$	100,903	$	3,609	$	21,623	$	82,889	3.52	%
[1]Includes $57.2 million pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral.

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, 2016 by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	4,105	$	2,862
After 1 to 5 years		15,540		9,544
After 5 to 10 years		18,709		10,947
After 10 years		59,747		52,223
Total investment securities held-to-maturity	$	98,101	$	75,576

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, 2016 and 2015:

		At December 31, 2016
		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		$	31,294	$	1,702	$	30,947	$	22,153	$	62,241	$	23,855
Other			491		9		1,217		33		1,708		42
Total investment securities held-to-maturity in an unrealized
	loss position	$	31,785	$	1,711	$	32,164	$	22,186	$	63,949	$	23,897

		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

As indicated in Note 8 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, 2016 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. This includes $53 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 $43 million in securities for which the underlying source of payment is not the central government, but in which a government insurance fund provides a guarantee in the event of default.

The Corporation performs periodic credit quality reviews on these issuers. Based on the quarterly analysis performed, management concluded that no individual debt security was other-than-temporarily impaired at December 31, 2016. Further deterioration of the fiscal crisis of the Government of Puerto Rico could further affect the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell securities held-to-maturity and it is more likely than not that the Corporation will not have to sell these investment securities prior to recovery of their amortized cost basis.