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INVESTMENT SECURITIES | 6 Months Ended
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Jun. 30, 2019
Debt and Equity Securities [Abstract] |
Investments In Debt And Marketable Equity Securities And Certain Trading Assets Disclosure | NOTE 5 – INVESTMENT SECURITIES Investment Securities Available for Sale The amortized cost, non-credit loss component of OTTI recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, estimated fair value, and weighted-average yield of investment securities available for sale by contractual maturities as of June 30, 2019 and December 31, 2018 were as follows:
|  | June 30, 2019
|  | Amortized cost |  | Noncredit Loss Component of OTTI Recorded in OCI |  |  |  | Fair value |  |
|  |  | Gross Unrealized |  |  | Weighted-
|  |  |  | gains |  | losses |  |  | average yield%
(Dollars in thousands) |
U.S. Treasury securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Due within one year | $ | 7,452 |  | $ | - |  | $ | 12 |  | $ | - |  | $ | 7,464 |  | 2.42
U.S. government-sponsored |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
agencies obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Due within one year |  | 182,408 |  |  | - |  |  | 1 |  |  | 482 |  |  | 181,927 |  | 1.31
After 1 to 5 years |  | 166,618 |  |  | - |  |  | 580 |  |  | 473 |  |  | 166,725 |  | 2.02
After 5 to 10 years |  | 154,368 |  |  | - |  |  | 1,064 |  |  | 8 |  |  | 155,424 |  | 2.89
After 10 years |  | 29,233 |  |  | - |  |  | 6 |  |  | 60 |  |  | 29,179 |  | 2.70
Puerto Rico government |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 5 to 10 years |  | 4,000 |  |  | - |  |  | 92 |  |  | - |  |  | 4,092 |  | 5.12
After 10 years |  | 4,298 |  |  | - |  |  | - |  |  | 1,399 |  |  | 2,899 |  | 6.97
United States and Puerto Rico |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
government obligations |  | 548,377 |  |  | - |  |  | 1,755 |  |  | 2,422 |  |  | 547,710 |  | 2.13
Mortgage-backed securities (“MBS”): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Freddie Mac (“FHLMC”) certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 5 to 10 years |  | 83,358 |  |  | - |  |  | 312 |  |  | 331 |  |  | 83,339 |  | 2.08
After 10 years |  | 246,050 |  |  | - |  |  | 2,657 |  |  | 1,501 |  |  | 247,206 |  | 2.52
|  |  | 329,408 |  |  | - |  |  | 2,969 |  |  | 1,832 |  |  | 330,545 |  | 2.41
Ginnie Mae (“GNMA”) certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Due within one year |  | 2 |  |  | - |  |  | - |  |  | - |  |  | 2 |  | 3.77
After 1 to 5 years |  | 137 |  |  | - |  |  | 2 |  |  | - |  |  | 139 |  | 3.84
After 5 to 10 years |  | 54,179 |  |  | - |  |  | 480 |  |  | 35 |  |  | 54,624 |  | 2.87
After 10 years |  | 111,034 |  |  | - |  |  | 5,455 |  |  | 187 |  |  | 116,302 |  | 3.94
|  |  | 165,352 |  |  | - |  |  | 5,937 |  |  | 222 |  |  | 171,067 |  | 3.59
Fannie Mae (“FNMA”) certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 1 to 5 years |  | 19,789 |  |  | - |  |  | 402 |  |  | 6 |  |  | 20,185 |  | 2.79
After 5 to 10 years |  | 149,405 |  |  | - |  |  | 1,254 |  |  | 836 |  |  | 149,823 |  | 2.12
After 10 years |  | 509,874 |  |  | - |  |  | 6,813 |  |  | 3,551 |  |  | 513,136 |  | 2.67
|  | 679,068 |  |  | - |  |  | 8,469 |  |  | 4,393 |  |  | 683,144 |  | 2.55
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
issued or guaranteed by the FHLMC |  |  |  |  |  |  |  | ` |  |  |  |  |  |  |  |
and GNMA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 1 to 5 years |  | 930 |  |  | - |  |  | 1 |  |  | - |  |  | 931 |  | 3.07
After 10 years |  | 56,874 |  |  | - |  |  | 411 |  |  | 1 |  |  | 57,284 |  | 3.16
|  |  | 57,804 |  |  | - |  |  | 412 |  |  | 1 |  |  | 58,215 |  | 3.16
Other mortgage pass-through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
trust certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 10 years |  | 17,864 |  |  | 5,357 |  |  | - |  |  | - |  |  | 12,507 |  | 4.39
Total MBS |  | 1,249,496 |  |  | 5,357 |  |  | 17,787 |  |  | 6,448 |  |  | 1,255,478 |  | 2.71
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
After 1 to 5 years |  | 500 |  |  | - |  |  | - |  |  | - |  |  | 500 |  | 2.96
Total investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
available for sale | $ | 1,798,373 |  | $ | 5,357 |  | $ | 19,542 |  | $ | 8,870 |  | $ | 1,803,688 |  | 2.53
|  | December 31, 2018
|  | Amortized cost |  | Noncredit Loss Component of OTTI Recorded in OCI |  | Gross Unrealized |  | Fair value |  |
|  |  |  |  |  | Weighted-
|  |  |  | gains |  | losses |  |  | average yield%
(Dollars in thousands)
U.S. Treasury securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Due within one year | $ | 7,489 |  | $ | - |  | $ | - |  | $ | 33 |  | $ | 7,456 |  | 1.29
U.S. government-sponsored |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
agencies obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Due within one year |  | 191,531 |  |  | - |  |  | - |  |  | 1,908 |  |  | 189,623 |  | 1.28
| After 1 to 5 years |  | 184,851 |  |  | - |  |  | 203 |  |  | 2,249 |  |  | 182,805 |  | 2.07
| After 5 to 10 years |  | 195,750 |  |  | - |  |  | 286 |  |  | 1,674 |  |  | 194,362 |  | 2.95
| After 10 years |  | 34,627 |  |  | - |  |  | - |  |  | 217 |  |  | 34,410 |  | 2.68
Puerto Rico government |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 5 to 10 years |  | 4,000 |  |  | - |  |  | 128 |  |  | - |  |  | 4,128 |  | 5.12
| After 10 years |  | 4,185 |  |  | - |  |  | - |  |  | 1,361 |  |  | 2,824 |  | 6.97
United States and Puerto Rico |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
government obligations |  | 622,433 |  |  | - |  |  | 617 |  |  | 7,442 |  |  | 615,608 |  | 2.18
MBS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FHLMC certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 5 to 10 years |  | 92,149 |  |  | - |  |  | 31 |  |  | 1,850 |  |  | 90,330 |  | 2.09
| After 10 years |  | 265,624 |  |  | - |  |  | 523 |  |  | 6,699 |  |  | 259,448 |  | 2.52
|  |  | 357,773 |  |  | - |  |  | 554 |  |  | 8,549 |  |  | 349,778 |  | 2.41
GNMA certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 176 |  |  | - |  |  | 3 |  |  | - |  |  | 179 |  | 3.43
| After 5 to 10 years |  | 61,604 |  |  | - |  |  | 408 |  |  | 503 |  |  | 61,509 |  | 2.88
| After 10 years |  | 118,898 |  |  | - |  |  | 2,938 |  |  | 747 |  |  | 121,089 |  | 3.92
|  |  | 180,678 |  |  | - |  |  | 3,349 |  |  | 1,250 |  |  | 182,777 |  | 3.56
FNMA certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Due within one year |  | 119 |  |  | - |  |  | 2 |  |  | - |  |  | 121 |  | 2.20
| After 1 to 5 years |  | 19,798 |  |  | - |  |  | 50 |  |  | 122 |  |  | 19,726 |  | 2.79
| After 5 to 10 years |  | 165,067 |  |  | - |  |  | 2 |  |  | 3,822 |  |  | 161,247 |  | 2.13
| After 10 years | 543,972 |  |  | - |  |  | 2,211 |  |  | 13,233 |  |  | 532,950 |  | 2.67
|  |  | 728,956 |  |  | - |  |  | 2,265 |  |  | 17,177 |  |  | 714,044 |  | 2.55
Collateralized mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| obligations issued or guaranteed |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| by the FHLMC and GNMA: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 6,530 |  |  | - |  |  | 1 |  |  | 18 |  |  | 6,513 |  | 3.15
| After 10 years |  | 59,020 |  |  | - |  |  | 474 |  |  | 60 |  |  | 59,434 |  | 3.22
|  |  | 65,550 |  |  | - |  |  | 475 |  |  | 78 |  |  | 65,947 |  | 3.22
Other mortgage pass-through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
trust certificates: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 10 years |  | 19,340 |  |  | 5,426 |  |  | - |  |  | - |  |  | 13,914 |  | 4.89
Total MBS |  | 1,352,297 |  |  | 5,426 |  |  | 6,643 |  |  | 27,054 |  |  | 1,326,460 |  | 2.71
Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years |  | 500 |  |  | - |  |  | - |  |  | - |  |  | 500 |  | 2.96
Total investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| available for sale | $ | 1,975,230 |  | $ | 5,426 |  | $ | 7,260 |  | $ | 34,496 |  | $ | 1,942,568 |  | 2.55
Maturities of MBS are based on the period of final contractual maturity. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on investment securities available for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on securities available for sale and the noncredit loss component of OTTI are presented as part of OCI. The following tables show the Corporation’s available-for-sale investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2019 and December 31, 2018. The tables also include debt securities for which an OTTI was recognized and only the amount related to a credit loss was recognized in earnings. For unrealized losses for which OTTI was recognized, the related credit loss was charged against the amortized cost basis of the debt security.
|  | As of June 30, 2019
|  | Less than 12 months |  | 12 months or more |  | Total
|  |  |  | Unrealized |  |  |  | Unrealized |  |  |  | Unrealized
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
| (In thousands) |  |
| Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Puerto Rico-government obligations | $ | - |  | $ | - |  | $ | 2,899 |  | $ | 1,399 |  | $ | 2,899 |  | $ | 1,399
| U.S. Treasury and U.S. government |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| agenciesʼ obligations |  | - |  |  | - |  |  | 293,853 |  |  | 1,023 |  |  | 293,853 |  |  | 1,023
| MBS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| FNMA |  | - |  |  | - |  |  | 321,593 |  |  | 4,393 |  |  | 321,593 |  |  | 4,393
| FHLMC |  | - |  |  | - |  |  | 116,615 |  |  | 1,832 |  |  | 116,615 |  |  | 1,832
| GNMA |  | - |  |  | - |  |  | 29,638 |  |  | 222 |  |  | 29,638 |  |  | 222
| Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| issued or guaranteed by the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| FHLMC and GNMA |  | 3,095 |  |  | 1 |  |  | - |  |  | - |  |  | 3,095 |  |  | 1
| Other mortgage pass-through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| trust certificates |  | - |  |  | - |  |  | 12,507 |  |  | 5,357 |  |  | 12,507 |  |  | 5,357
|  | $ | 3,095 |  | $ | 1 |  | $ | 777,105 |  | $ | 14,226 |  | $ | 780,200 |  | $ | 14,227
|  | As of December 31, 2018
|  | Less than 12 months |  | 12 months or more |  | Total
|  |  |  | Unrealized |  |  |  | Unrealized |  |  |  | Unrealized
|  | Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
(In thousands) |  |
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Puerto Rico-government obligations | $ | - |  | $ | - |  | $ | 2,824 |  | $ | 1,361 |  | $ | 2,824 |  | $ | 1,361
U.S. Treasury and U.S. government |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
agenciesʼ obligations |  | 16,669 |  |  | 77 |  |  | 468,094 |  |  | 6,004 |  |  | 484,763 |  |  | 6,081
MBS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA |  | 25,079 |  |  | 129 |  |  | 521,871 |  |  | 17,048 |  |  | 546,950 |  |  | 17,177
FHLMC |  | 3,382 |  |  | 32 |  |  | 263,798 |  |  | 8,517 |  |  | 267,180 |  |  | 8,549
GNMA |  | 3,364 |  |  | 15 |  |  | 57,535 |  |  | 1,235 |  |  | 60,899 |  |  | 1,250
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
issued or guaranteed by the |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FHLMC and GNMA |  | 16,065 |  |  | 78 |  |  | - |  |  | - |  |  | 16,065 |  |  | 78
Other mortgage pass-through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
trust certificates |  | - |  |  | - |  |  | 13,914 |  |  | 5,426 |  |  | 13,914 |  |  | 5,426
| $ | 64,559 |  | $ | 331 |  | $ | 1,328,036 |  | $ | 39,591 |  | $ | 1,392,595 |  | $ | 39,922
Assessment for OTTI Debt securities issued by U.S. government agencies, U.S. government-sponsored entities (“GSEs”), and the U.S. Treasury accounted for approximately 99% of the total available-for-sale portfolio as of June 30, 2019, and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government. The Corporation’s OTTI assessment was concentrated mainly on private label MBS, and on Puerto Rico government debt securities, for which credit losses are evaluated on a quarterly basis. The Corporation considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover: The length of time and the extent to which the fair value has been less than the amortized cost basis; Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the financial condition of the issuer, credit ratings, the failure of the issuer to make scheduled principal or interest payments, any recent legislation and government actions affecting the issuer’s industry; and actions taken by the issuer to deal with the present economic climate; Changes in the near term prospects of the underlying collateral for a security, if any, such as changes in default rates, loss severity given default, and significant changes in prepayment assumptions; and The level of cash flows generated from the underlying collateral, if any, supporting the principal and interest payments of the debt securities. No OTTI losses on available-for-sale debt securities were recorded in the first six months of 2019 and 2018.
The following tables summarize the roll-forward of credit losses on debt securities held by the Corporation for which a portion of an OTTI was also recognized in OCI as of the indicated dates: |
|  | Cumulative OTTI credit losses recognized in earnings on securities still held |
|  |  |  |  |  | Credit impairments |  |  |
|  | March 31, |  |  | recognized in earnings on |  | June 30, |
|  | 2019 |  |  | securities that have been |  | 2019 |
|  | Balance |  |  | previously impaired |  | Balance |
(In thousands) |  |  |  |  |  |  |  |  |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |
Private label MBS | $ | 6,842 |  |  | $ | - |  | $ | 6,842 |
|  | Cumulative OTTI credit losses recognized in earnings on securities still held |
|  |  |  |  | Credit impairments |  |  |
|  | December 31, |  | recognized in earnings on |  | June 30, |
|  | 2018 |  | securities that have been |  | 2019 |
|  | Balance |  | previously impaired |  | Balance |
(In thousands) |  |  |  |  |  |  |  |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |
Private label MBS | $ | 6,842 |  | $ | - |  | $ | 6,842 |
|  | Cumulative OTTI credit losses recognized in earnings on securities still held |
|  |  |  |  | Credit impairments |  |  |
|  | March 31, |  | recognized in earnings |  | June 30, |
|  | 2018 |  | on securities that have been |  | 2018 |
|  | Balance |  | previously impaired |  | Balance |
(In thousands) |  |  |  |  |  |  |  |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |
Private label MBS | $ | 6,792 |  | $ | - |  | $ | 6,792 |
|  | Cumulative OTTI credit losses recognized in earnings on securities still held |
|  |  |  |  | Credit impairments |  |  |
|  | December 31, |  | recognized in earnings |  | June 30, |
|  | 2017 |  | on securities that have been |  | 2018 |
|  | Balance |  | previously impaired |  | Balance |
(In thousands) |  |  |  |  |  |  |  |  |
Available-for-sale securities |  |  |  |  |  |  |  |  |
Private label MBS | $ | 6,792 |  | $ | - |  | $ | 6,792 |
As of June 30, 2019, the Corporation’s available-for-sale investment securities portfolio included bonds of the Puerto Rico Housing Finance Authority (“PRHFA”) at an amortized cost of $8.3 million (fair value - $7.0 million). Approximately $4.3 million (fair value - $2.9 million) of these bonds consist of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010. This bond was structured as a zero-coupon bond for the first ten years (up to July 2019). The underlying source of payment is second mortgage loans in Puerto Rico, not the central government, but PRHFA provides a guarantee in the event of default and subsequent foreclosure of the underlying property. Based on the quarterly analyses performed, management concluded that these obligations were not other-than-temporarily impaired as of June 30, 2019. A deterioration of the Puerto Rico economy or fiscal health of the PRHFA could further impact the value of these securities, resulting in losses to the Corporation. The Corporation does not have the intent to sell these debt securities prior to recovery of the amortized cost basis. The Corporation performed an OTTI assessment on its private label MBS, which are collateralized by fixed-rate mortgages on single-family residential properties in the United States. The interest rate on these private-label MBS is variable, tied to 3-month LIBOR and limited to the weighted-average coupon on the underlying collateral. The underlying mortgages are fixed-rate, single-family loans with original FICO scores (over 700) and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels. Based on the expected cash flows, and since the Corporation does not have the intention to sell the securities and has sufficient capital and liquidity to hold these securities until a recovery of the fair value occurs, only the credit loss component, if any, is reflected in earnings. Significant assumptions in the valuation of the private label MBS were as follows:
| As of |  | As of
| June 30, 2019 |  | December 31, 2018
| Weighted |  | Range |  | Weighted |  | Range
| Average |  | Minimum | Maximum |  | Average |  | Minimum | Maximum
Discount rate | 13.8% |  | 13.8% | 13.8% |  | 14.5% |  | 14.5% | 14.5%
Prepayment rate | 9.1% |  | 3.3% | 17.0% |  | 11.4% |  | 3.3% | 20.9%
Projected Cumulative Loss Rate | 3.1% |  | 0.0% | 6.6% |  | 3% |  | 0.0% | 6.8%
Investments Held to Maturity The amortized cost, gross unrecognized gains and losses, estimated fair value, weighted-average yield and contractual maturities of investment securities held to maturity as of June 30, 2019 and December 31, 2018 were as follows:
|  | June 30, 2019
|  | Amortized cost |  |  |  |  | Fair value |  |
|  |  |  | Gross Unrecognized |  |  |
(Dollars in thousands) |  |  | gains |  | losses |  |  | Weighted- average yield%
Puerto Rico Municipal Bonds: |  |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years | $ | 5,957 |  |  | $ | - |  | $ | 402 |  | $ | 5,555 |  | 4.96
| After 5 to 10 years |  | 53,016 |  |  |  | - |  |  | 5,684 |  |  | 47,332 |  | 6.11
| After 10 years |  | 85,699 |  |  |  | - |  |  | 15,472 |  |  | 70,227 |  | 6.03
Total investment securities |  |  |  |  |  |  |  |  |  |  |  |  |  |
| held to maturity | $ | 144,672 |  |  | $ | - |  | $ | 21,558 |  | $ | 123,114 |  | 6.02
|  | December 31, 2018
|  | Amortized cost |  |  |  | Fair value |  |
|  |  | Gross Unrecognized |  |  |
(Dollars in thousands) |  | gains |  | losses |  |  | Weighted- average yield%
Puerto Rico Municipal Bonds: |  |  |  |  |  |  |  |  |  |  |  |  |
| After 1 to 5 years | $ | 6,100 |  | $ | - |  | $ | 435 |  | $ | 5,665 |  | 4.79
| After 5 to 10 years |  | 53,016 |  |  | - |  |  | 5,360 |  |  | 47,656 |  | 6.00
| After 10 years |  | 85,699 |  |  | - |  |  | 13,362 |  |  | 72,337 |  | 5.86
Total investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
| held to maturity | $ | 144,815 |  | $ | - |  | $ | 19,157 |  | $ | 125,658 |  | 5.86
The following tables show the Corporation’s held-to-maturity investments’ fair value and gross unrecognized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrecognized loss position, as of June 30, 2019 and December 31, 2018:
| As of June 30, 2019
| Less than 12 months |  | 12 months or more |  | Total
|  |  | Unrecognized |  |  |  | Unrecognized |  |  |  | Unrecognized
| Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
|  | (In thousands)
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Puerto Rico Municipal Bonds | $ | - |  | $ | - |  | $ | 123,114 |  | $ | 21,558 |  | $ | 123,114 |  | $ | 21,558
| As of December 31, 2018
| Less than 12 months |  | 12 months or more |  | Total
|  |  | Unrecognized |  |  |  | Unrecognized |  |  |  | Unrecognized
| Fair Value |  | Losses |  | Fair Value |  | Losses |  | Fair Value |  | Losses
|  | (In thousands)
Debt securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Puerto Rico Municipal Bonds | $ | - |  | $ | - |  | $ | 125,658 |  | $ | 19,157 |  | $ | 125,658 |  | $ | 19,157
The Corporation determines the fair market value of Puerto Rico Municipal Bonds based on a discounted cash flow analysis using risk-adjusted discount rates. A security with similar characteristics traded in the open market is used as a proxy for each municipal bond. Then, the cash flow is discounted at the average spread over the discount curve exhibited by the proxy security at the end of each quarter, plus any corresponding discount rate adjustments to reflect recent transactions or market yield expectations for these type of transactions. All of the Puerto Rico Municipal Bonds were performing and current as to scheduled contractual payments as of June 30, 2019. Approximately 70% of the held-to-maturity municipal bonds were issued by three of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities is independent of the Puerto Rico central government. These obligations typically are not issued in bearer form, nor are they registered with the SEC, and are not rated by external credit agencies. In most cases, these bonds have priority over the payment of operating costs and expenses of the municipality, which are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and loans. The Corporation performs periodic credit quality reviews on these issuers. Based on the quarterly analysis performed, management concluded that no individual debt security held to maturity was other-than-temporarily impaired as of June 30, 2019. During the second quarter of 2019, the PROMESA oversight board announced the designation of the Puerto Rico’s 78 municipalities as covered instrumentalities under PROMESA. Meanwhile, the latest fiscal plan certified by the PROMESA oversight board did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, but the plan did call for the gradual elimination of budgetary subsidies provided to municipalities by the central government. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from expense, revenue or cash management measures taken by the Puerto Rico government to address its fiscal and liquidity shortfalls, or measures included in fiscal plans of other government entities, such as the fiscal plans of the Government Development Bank for Puerto Rico (“GDB”) and the Puerto Rico Electric Power Authority (“PREPA”). Given the uncertain effect that the negative fiscal situation of the Puerto Rico central government and the measures taken, or to be taken, by other government entities may have on municipalities, the Corporation cannot be certain whether future impairment charges relating to these securities will be required. From time to time, the Corporation has securities held to maturity with an original maturity of three months or less that are considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial condition. As of June 30, 2019 and December 31, 2018, the Corporation had no outstanding securities held to maturity that were classified as cash and cash equivalents.

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