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Debt securities held-to-maturity
 6 Months Ended
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).