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Debt securities held-to-maturity | 6 Months Ended
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Jun. 30, 2024
Held To Maturity Debt Securities |
Schedule of Held-to-maturity Securities [Line Items] |
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 June 30, 2024 and December 31, 2023. At June 30, 2024 Allowance Carrying Value Gross Gross Weighted Amortized Book [1] for Credit Net of unrealized unrealized Fair average (In thousands) cost Value Losses Allowance gains losses value yield U.S. Treasury securities Within 1 year $ 598,695 $ 598,695 $ - $ 598,695 $ - $ 7,917 $ 590,778 2.66 % After 1 to 5 years 7,878,042 7,307,981 - 7,307,981 - 128,694 7,179,287 1.34 Total U.S. Treasury securities 8,476,737 7,906,676 - 7,906,676 - 136,611 7,770,065 1.43 Obligations of Puerto Rico, States and political subdivisions Within 1 year 3,055 3,055 6 3,049 2 - 3,051 6.23 After 1 to 5 years 18,595 18,595 112 18,483 52 148 18,387 3.60 After 5 to 10 years 845 845 28 817 20 - 837 5.80 After 10 years 38,866 38,866 6,105 32,761 2,781 1,967 33,575 1.42 Total obligations of Puerto Rico, States and political subdivisions 61,361 61,361 6,251 55,110 2,855 2,115 55,850 2.38 Collateralized mortgage obligations - federal agencies After 10 years 1,527 1,527 - 1,527 - 186 1,341 2.87 Total collateralized mortgage obligations - federal agencies 1,527 1,527 - 1,527 - 186 1,341 2.87 Securities in wholly owned statutory business trusts After 10 years 5,960 5,960 - 5,960 - - 5,960 6.33 Total securities in wholly owned statutory business trusts 5,960 5,960 - 5,960 - - 5,960 6.33 Total debt securities held-to-maturity [2] $ 8,545,585 $ 7,975,524 $ 6,251 $ 7,969,273 $ 2,855 $ 138,912 $ 7,833,216 1.44 % [1] Book value includes $ 570 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to certain securities previously transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio. [2] Includes $ 7.9 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The Corporation had unpledged held-to-maturities securities with a fair value of $ 69.7 million that could be used to increase its borrowing facilities. At December 31, 2023 Allowance Carrying Value Gross Gross Weighted Amortized Book [1] for Credit Net of unrealized unrealized Fair average (In thousands) cost Value Losses Allowance gains losses value yield U.S. Treasury securities Within 1 year $ 597,768 $ 597,768 $ - $ 597,768 $ - $ 7,526 $ 590,242 2.58 % After 1 to 5 years 7,971,072 7,335,159 - 7,335,159 637 21,996 7,313,800 1.39 After 5 to 10 years 211,061 188,484 - 188,484 - 187 188,297 1.50 Total U.S. Treasury securities 8,779,901 8,121,411 - 8,121,411 637 29,709 8,092,339 1.47 Obligations of Puerto Rico, States and political subdivisions ` Within 1 year 4,820 4,820 9 4,811 3 - 4,814 6.17 After 1 to 5 years 20,171 20,171 147 20,024 96 125 19,995 3.80 After 5 to 10 years 845 845 28 817 28 - 845 5.80 After 10 years 39,572 39,572 5,596 33,976 2,814 2,766 34,024 1.41 Total obligations of Puerto Rico, States and political subdivisions 65,408 65,408 5,780 59,628 2,941 2,891 59,678 2.55 Collateralized mortgage obligations - federal agencies Within 1 year 13 13 - 13 - - 13 6.44 After 10 years 1,543 1,543 - 1,543 - 148 1,395 2.87 Total collateralized mortgage obligations - federal agencies 1,556 1,556 - 1,556 - 148 1,408 2.90 Securities in wholly owned statutory business trusts After 10 years 5,960 5,960 - 5,960 - - 5,960 6.33 Total securities in wholly owned statutory business trusts 5,960 5,960 - 5,960 - - 5,960 6.33 Total debt securities held-to-maturity [2] $ 8,852,825 $ 8,194,335 $ 5,780 $ 8,188,555 $ 3,578 $ 32,748 $ 8,159,385 1.48 % [1] Book value includes $ 658 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to certain securities transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio as discussed in Note 6 of the 2023 Form 10-K. [2] Includes $ 8.1 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The Corporation had unpledged held-to-maturities securities with a fair value of $ 67.3 million that could be used to increase its borrowing facilities. 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 to develop the estimate of the allowance for credit losses for investment securities held-to-maturity. As discussed in Note 2 of 2023 Form 10-K, U.S. Treasury securities carry an explicit guarantee from the U.S. Government are highly rated by major rating agencies and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit loss assumption and no allowance for credit losses (“ACL”) for these securities has been established. At June 30, 2024 and December 31, 2023, 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 $ 16 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, 2023 - $ 19 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. 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 June 30, 2024 At December 31, 2023 (In thousands) Securities issued by Puerto Rico municipalities Watch $ 2,255 $ 2,255 Pass 13,265 16,565 Total $ 15,520 $ 18,820 At June 30, 2024, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $ 39 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, 2023 - $ 40 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. As of June 30, 2024, the average refreshed FICO score for the sample, comprised of 69 % of the nominal value of the securities, used for the loss estimate was of 672 (compared to 67 % and 708 , respectively, at December 31, 2023). 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 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 adversely affect the value of these securities, resulting in losses to the Corporation. Refer to Note 20 to the Consolidated Financial Statements for additional information on the Corporation’s exposure to the Puerto Rico Government. At June 30, 2024 and December 31, 2023, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $ 7 million in securities issued by the HFA for which the underlying source of payment is U.S. Treasury securities. The Corporation applies a zero -credit loss assumption for these securities, and no ACL has been established for these securities given that U.S. Treasury securities carry an explicit guarantee from the U.S. Government, are highly rated by major rating agencies, and have a long history of no credit losses. Refer to Note 2 of 2023 Form 10-K for further details. Delinquency status At June 30, 2024 and December 31, 2023, 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 for the quarters and six months ended June 30, 2024 and June 30, 2023: For the quarters ended June 30, 2024 2023 (In thousands) Obligations of Puerto Rico, States and political subdivisions Allowance for credit losses: Beginning balance $ 5,731 $ 6,792 Provision for credit losses (benefit) 520 (647) Securities charged-off - - Recoveries - - Ending balance $ 6,251 $ 6,145 For the six months ended June 30, 2024 2023 (In thousands) Obligations of Puerto Rico, States and political subdivisions Allowance for credit losses: Beginning balance $ 5,780 $ 6,911 Provision for credit losses (benefit) 471 (766) Securities charged-off - - Recoveries - - Ending balance $ 6,251 $ 6,145 The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $ 0.2 million for securities issued by municipalities of Puerto Rico, and $ 6.1 million for bonds issued by the Puerto Rico HFA, which are secured by second mortgage loans on Puerto Rico residential properties (compared to $ 0.2 million and $ 5.6 million, respectively, at December 31, 2023).

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