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Debt securities held-to-maturity | 9 Months Ended
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Sep. 30, 2021
Held To Maturity Debt Securities |
Debt Securities, Held-to-maturity |
Investments in debt and marketable equity securities | Note 6 –Debt securities held-to-maturity The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of debt securities held-to-maturity at September 30, 2021 and December 31, 2020.
|  | At September 30, 2021 |
|  |  |  |  | Allowance |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized |  | for Credit |  | Net of | unrealized | unrealized | Fair | average |
(In thousands) | cost |  | Losses |  | Allowance | gains | losses | value | yield |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 4,240 | $ | 46 | $ | 4,194 | $ | 47 | $ | - | $ | 4,241 | 6.09 | %
| After 1 to 5 years |  | 14,395 |  | 555 |  | 13,840 |  | 555 |  | - |  | 14,395 | 6.23 |
| After 5 to 10 years |  | 11,280 |  | 347 |  | 10,933 |  | 194 |  | - |  | 11,127 | 2.18 |
| After 10 years |  | 44,149 |  | 8,274 |  | 35,875 |  | 12,545 |  | - |  | 48,420 | 1.52 |
Total obligations of Puerto Rico, States and political subdivisions |  | 74,064 |  | 9,222 |  | 64,842 |  | 13,341 |  | - |  | 78,183 | 2.80 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 30 |  | - |  | 30 |  | 1 |  | - |  | 31 | 6.44 |
Total collateralized mortgage obligations - federal agencies |  | 30 |  | - |  | 30 |  | 1 |  | - |  | 31 | 6.44 |
Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 10 years |  | 11,561 |  | - |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total debt securities held-to-maturity | $ | 85,655 | $ | 9,222 | $ | 76,433 | $ | 13,342 | $ | - | $ | 89,775 | 3.30 | %
|  | At December 31, 2020 |
|  |  |  |  | Allowance |  |  | Gross | Gross |  |  | Weighted |
|  | Amortized |  | for Credit |  | Net of | unrealized | unrealized | Fair | average |
(In thousands) | cost |  | Losses |  | Allowance | gains | losses | value | yield |
Obligations of Puerto Rico, States and political subdivisions |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Within 1 year | $ | 3,990 | $ | 50 | $ | 3,940 | $ | 47 | $ | - | $ | 3,987 | 6.05 | %
| After 1 to 5 years |  | 16,030 |  | 710 |  | 15,320 |  | 710 |  | - |  | 16,030 | 6.16 |
| After 5 to 10 years |  | 14,845 |  | 573 |  | 14,272 |  | 295 |  | 23 |  | 14,544 | 2.77 |
| After 10 years |  | 46,164 |  | 8,928 |  | 37,236 |  | 11,501 |  | - |  | 48,737 | 1.58 |
Total obligations of Puerto Rico, States and political subdivisions |  | 81,029 |  | 10,261 |  | 70,768 |  | 12,553 |  | 23 |  | 83,298 | 2.93 |
Collateralized mortgage obligations - federal agencies |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 31 |  | - |  | 31 |  | 1 |  | - |  | 32 | 6.44 |
Total collateralized mortgage obligations - federal agencies |  | 31 |  | - |  | 31 |  | 1 |  | - |  | 32 | 6.44 |
Securities in wholly owned statutory business trusts |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 10 years |  | 11,561 |  | - |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | - |  | 11,561 | 6.51 |
Total debt securities held-to-maturity | $ | 92,621 | $ | 10,261 | $ | 82,360 | $ | 12,554 | $ | 23 | $ | 94,891 | 3.38 | %
Debt 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. Credit Quality Indicators The following describes the credit quality indicators by major security type that the Corporation considers in its’ estimate to develop the allowance for credit losses for investment securities held-to-maturity. At September 30, 2021 and December 31, 2020, the “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity, includes securities issued by municipalities of Puerto Rico that are generally not rated by a credit rating agency. This includes $30 million of general and special obligation bonds issued by three municipalities of Puerto Rico, that are payable primarily from certain property taxes imposed by the issuing municipality (December 31, 2020 - $35 million). In the case of general obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality, which is required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds. The Corporation performs periodic credit quality reviews of these securities and internally assigns standardized credit risk ratings based on its evaluation. The Corporation considers these ratings in its estimate to develop the allowance for credit losses associated with these securities. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated Financial Statements included in the Corporation’s Form 10-K for the year ended December 31, 2020. The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico aggregated by the internally assigned standardized credit risk rating:
|  | At September 30, 2021 | At December 31, 2020
(In thousands) | Securities issued by Puerto Rico municipalities
Watch | $ | 16,345 | $ | 35,315
Pass |  | 13,800 |  | -
Total | $ | 30,145 | $ | 35,315
At September 30, 2021, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $44 million in securities issued by the Puerto Rico Housing Finance Authority (“HFA”), a government instrumentality, for which the underlying source of payment is second mortgage loans in Puerto Rico residential properties (not the government), but for which HFA, provides a guarantee in the event of default and upon the satisfaction of certain other conditions (December 31, 2020 - $46 million). These securities are not rated by a credit rating agency. The Corporation assesses the credit risk associated with these securities by evaluating the refreshed FICO scores of a representative sample of the underlying borrowers. At September 30, 2021, the average refreshed FICO score for the representative sample, comprised of 66% of the nominal value of the securities, used for the loss estimate was of 702 (compared to 66% and 697, respectively, at December 31, 2020). The loss estimates for this portfolio was based on the methodology established under CECL for similar loan obligations. The Corporation does not consider the government guarantee when estimating the credit losses associated with this portfolio. A further deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities (including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could further affect the value of these securities, resulting in losses to the Corporation. Refer to Note 20 for additional information on the Corporation’s exposure to the Puerto Rico Government. Delinquency status At September 30, 2021 and December 31, 2020, there were no securities held-to-maturity in past due or non-performing status. Allowance for credit losses on debt securities held-to-maturity The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type at September 30, 2021 and September 30, 2020:
|  | For the quarters ended September 30,
|  |  | 2021 |  | 2020
(In thousands) | Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses: |  |  |  |
Beginning balance |  | $ | 10,214 | $ | 12,735
Provision for credit losses (benefit) |  |  | (992) |  | (314)
Securities charged-off |  |  | - |  | -
Recoveries |  |  | - |  | -
Ending balance | $ | 9,222 | $ | 12,421
|  | For the nine months ended September 30,
|  |  | 2021 |  | 2020
(In thousands) |  | Obligations of Puerto Rico, States and political subdivisions
Allowance for credit losses: |  |  |  |
Beginning balance |  | $ | 10,261 | $ | -
Impact of adopting CECL |  |  | - |  | 12,654
Provision for credit losses (benefit) |  |  | (1,039) |  | (233)
Securities charged-off |  |  | - |  | -
Recoveries |  |  | - |  | -
Ending balance | $ | 9,222 | $ | 12,421
The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $1.0 million for securities issued by municipalities of Puerto Rico, and $8.2 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $1.4 million and $8.9 million, respectively, at December 31, 2020).

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 + Details
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