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Investments Securities | 9 Months Ended
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Sep. 30, 2014
Investments [Abstract] |
Investments Securities | NOTE 3 – INVESTMENT SECURITIES Money Market Investments The Company considers as cash equivalents all money market instruments that are not pledged and that have maturities of three months or less at the date of acquisition. At September 30, 2014 and Dec ember 3 1, 2013, money market instruments included as part of cash and cash equivalents amounted to $7.8 million and $7.0 million, respectively. Securities Purchased Under Agreements to Resell Securities purchased under agreements to resell consist of short-term investments and are carried at the amounts at which the assets will be subsequently resold as specified in the respective agreements. At December 31, 2013, securities purchased under agreements to resell amounted to $6 0.0 million. At September 30, 2014, there were no securities purchased under agreements to resell. The amounts advanced under those agreements are reflected as assets in the consolidated statements of financial condition. It is the Company's policy to take possession of securities purchas ed under agreements to resell. Agreements with third parties specify the Company's right to request additional collateral based on its monitoring of the fair value of the underlying securities on a daily basis. The fair value of the collateral securities held by the Company on these transactions as of December 31, 2013 was approximately $64.6 million. Investment Securities The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by the Company at September 30, 2014 and December 31, 2013 were as follows:
| September 30, 2014
|  |  | Gross |  | Gross |  |  |  | Weighted
| Amortized |  | Unrealized |  | Unrealized |  | Fair |  | Average
| Cost |  | Gains |  | Losses |  | Value |  | Yield
| (In thousands)
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 1,023,303 |  | $ | 36,414 |  | $ | 3,082 |  | $ | 1,056,635 |  | 3.13%
GNMA certificates |  | 5,241 |  |  | 348 |  |  | 21 |  |  | 5,568 |  | 4.92%
CMOs issued by US government-sponsored agencies |  | 189,142 |  |  | 206 |  |  | 4,390 |  |  | 184,958 |  | 1.80%
Total mortgage-backed securities |  | 1,217,686 |  |  | 36,968 |  |  | 7,493 |  |  | 1,247,161 |  | 2.93%
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of US government-sponsored agencies |  | 7,795 |  |  | - |  |  | 34 |  |  | 7,761 |  | 1.32%
Obligations of Puerto Rico government and political subdivisions |  | 20,915 |  |  | - |  |  | 5,469 |  |  | 15,446 |  | 5.41%
Other debt securities |  | 3,373 |  |  | 138 |  |  | - |  |  | 3,511 |  | 2.91%
Total investment securities |  | 32,083 |  |  | 138 |  |  | 5,503 |  |  | 26,718 |  | 4.15%
Total securities available for sale | $ | 1,249,769 |  | $ | 37,106 |  | $ | 12,996 |  | $ | 1,273,879 |  | 2.96%
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates |  | 144,305 |  |  | 82 |  |  | 170 |  |  | 144,217 |  | 1.95%
Total | $ | 1,394,074 |  | $ | 37,188 |  | $ | 13,166 |  | $ | 1,418,096 |  | 2.86%
| December 31, 2013
|  |  | Gross |  | Gross |  |  |  | Weighted
| Amortized |  | Unrealized |  | Unrealized |  | Fair |  | Average
| Cost |  | Gains |  | Losses |  | Value |  | Yield
| (In thousands)
Available-for-sale |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 1,190,910 |  | $ | 33,089 |  | $ | 6,669 |  | $ | 1,217,330 |  | 2.93%
GNMA certificates |  | 7,406 |  |  | 433 |  |  | 24 |  |  | 7,815 |  | 4.92%
CMOs issued by US government-sponsored agencies |  | 220,801 |  |  | 407 |  |  | 6,814 |  |  | 214,394 |  | 1.78%
Total mortgage-backed securities |  | 1,419,117 |  |  | 33,929 |  |  | 13,507 |  |  | 1,439,539 |  | 2.76%
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of US government-sponsored agencies |  | 10,691 |  |  | - |  |  | 42 |  |  | 10,649 |  | 1.21%
Obligations of Puerto Rico government and political subdivisions |  | 121,035 |  |  | - |  |  | 6,845 |  |  | 114,190 |  | 4.38%
Other debt securities |  | 24,200 |  |  | 167 |  |  | 320 |  |  | 24,047 |  | 3.46%
Total investment securities |  | 155,926 |  |  | 167 |  |  | 7,207 |  |  | 148,886 |  | 2.99%
Total securities available-for-sale | $ | 1,575,043 |  | $ | 34,096 |  | $ | 20,714 |  | $ | 1,588,425 |  | 2.89%
The amortized cost and fair value of the Company's investment securities at September 3 0, 201 4, by contractual maturity, are shown in the next table. Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
| September 30, 2014
| Available-for-sale |  | Held-to-maturity
| Amortized Cost |  | Fair Value |  | Amortized Cost |  | Fair Value
| (In thousands) |  | (In thousands)
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |
Due after 5 to 10 years |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 22,896 |  | $ | 23,243 |  | $ | - |  | $ | -
Total due after 5 to 10 years |  | 22,896 |  |  | 23,243 |  |  | - |  |  | -
Due after 10 years |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates |  | 1,000,407 |  |  | 1,033,392 |  |  | 144,305 |  |  | 144,217
GNMA certificates |  | 5,241 |  |  | 5,568 |  |  | - |  |  | -
CMOs issued by US government-sponsored agencies |  | 189,142 |  |  | 184,958 |  |  | - |  |  | -
Total due after 10 years |  | 1,194,790 |  |  | 1,223,918 |  |  | 144,305 |  |  | 144,217
Total mortgage-backed securities |  | 1,217,686 |  |  | 1,247,161 |  |  | 144,305 |  |  | 144,217
Investment securities |  |  |  |  |  |  |  |  |  |  |
Due from 1 to 5 years |  |  |  |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions |  | 10,450 |  |  | 8,628 |  |  | - |  |  | -
Total due from 1 to 5 years |  | 10,450 |  |  | 8,628 |  |  | - |  |  | -
Due after 5 to 10 years |  |  |  |  |  |  |  |  |  |  |
Obligations of US government and sponsored agencies |  | 7,795 |  |  | 7,761 |  |  | - |  |  | -
Total due after 5 to 10 years |  | 7,795 |  |  | 7,761 |  |  | - |  |  | -
Due after 10 years |  |  |  |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions |  | 10,465 |  |  | 6,818 |  |  | - |  |  | -
Other debt securities |  | 3,373 |  |  | 3,511 |  |  | - |  |  | -
Total due after 10 years |  | 13,838 |  |  | 10,329 |  |  | - |  |  | -
Total investment securities |  | 32,083 |  |  | 26,718 |  |  | - |  |  | -
Total securities available-for-sale | $ | 1,249,769 |  | $ | 1,273,879 |  | $ | 144,305 |  | $ | 144,217
At December 31, 2013, o bligations of the Puerto Rico g overnment and its political subdivisions include d a $98.7 million principal amount, LIBOR floating rate bond with a maturity date of July 1, 2024, that was su bject to mandatory tender for purchase by the end of the third year anniversa ry of the closing date, which was June 1, 2014. The bond was also subject to optional demand tender for purchase upon the occurrence and continuance of certain events, including (among others) the withdrawal, suspension or reduction below investment grade of the credit rating on any general obligation of the Commonwealth by any of the three major rating agencies. This bond was repaid by the issuer on March 17, 2014. The Company, as part of its asset/liability management, may purchase U.S. Treasury securities and U.S. government-sponsored agency discount notes close to their maturities as alternatives to cash deposits at correspondent banks or as a short term vehicle to reinvest the proceeds of sale transactions until investment securities with attractive yields can be purchased. During the nine-month period ended September 30, 2014, the Company sold $74.1 million of available-for-sale Government National Mortgage Association (“GNMA”) certificates that were sold as part of its recurring mortgage loan origination and securitization a ctivities. These sales did not realize any gains or losses during such period. In addition, during the nine-month period ended September 30, 2014, the Company sold $110.8 million of available-for-sale FNMA and FHLMC certificates because the Company believed that gains could be realize d and that there were good opportunities to invest the proceeds in other investment securities with attractive yields and terms that would allow the Company to continue protecting its net interest margin. T he Company recorded a net gain on sale of these securities of $4.4 millio n. The table below present s the gross realized ga ins by category for such period. There was no reali zed gain or loss for the nine-month period ended September 30, 2013.
| Nine-Month Period Ended September 30, 2014
|  |  | Book Value |  | Gross |  | Gross
Description | Sale Price |  | at Sale |  | Gains |  | Losses
| (In thousands)
Sale of securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 115,158 |  | $ | 110,792 |  | $ | 4,366 |  | $ | -
GNMA certificates |  | 74,091 |  |  | 74,091 |  |  | - |  |  | -
Total | $ | 189,249 |  | $ | 184,883 |  | $ | 4,366 |  | $ | -
The following table s show the Company's gross unrealized losses and fair value of investment securities availab le-for-sale and held-to-maturity, aggregated by investment category and the length of time that individual securities have been in a continuo us unrealized loss position at September 30, 2014 and December 31, 201 3:
| September 30, 2014
| 12 months or more
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies | $ | 149,957 |  | $ | 4,242 |  | $ | 145,716
FNMA and FHLMC certificates |  | 183,479 |  |  | 3,049 |  |  | 180,430
Obligations of Puerto Rico government and political subdivisions |  | 20,915 |  |  | 5,469 |  |  | 15,446
GNMA certificates |  | 197 |  |  | 22 |  |  | 176
| $ | 354,548 |  | $ | 12,782 |  | $ | 341,768
| Less than 12 months
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies | $ | 15,746 |  | $ | 148 |  | $ | 15,598
FNMA and FHLMC certificates |  | 26,220 |  |  | 33 |  |  | 26,187
Obligations of US government and sponsored agencies |  | 7,796 |  |  | 34 |  |  | 7,761
Securities held-to-maturity |  |  |  |  |  |  |  |
FNMA and FHLMC Certificates |  | 95,598 |  |  | 170 |  |  | 95,428
| $ | 145,359 |  | $ | 385 |  | $ | 144,974
| Total
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies | $ | 165,703 |  | $ | 4,390 |  | $ | 161,314
FNMA and FHLMC certificates |  | 209,699 |  |  | 3,082 |  |  | 206,617
Obligations of Puerto Rico government and political subdivisions |  | 20,915 |  |  | 5,469 |  |  | 15,446
Obligations of US government and sponsored agencies |  | 7,796 |  |  | 34 |  |  | 7,761
GNMA certificates |  | 197 |  |  | 22 |  |  | 176
|  | 404,309 |  |  | 12,996 |  |  | 391,314
Securities held-to-maturity |  |  |  |  |  |  |  |
FNMA and FHLMC Certificates |  | 95,598 |  |  | 170 |  |  | 95,428
| $ | 499,907 |  | $ | 13,166 |  | $ | 486,742
| December 31, 2013
| 12 months or more
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions | $ | 20,845 |  | $ | 5,470 |  | $ | 15,375
CMOs issued by US government-sponsored agencies |  | 2,559 |  |  | 237 |  |  | 2,322
GNMA certificates |  | 81 |  |  | 11 |  |  | 70
| $ | 23,485 |  | $ | 5,718 |  | $ | 17,767
| Less than 12 months
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions | $ | 100,190 |  | $ | 1,375 |  | $ | 98,815
CMOs issued by US government-sponsored agencies |  | 182,661 |  |  | 6,577 |  |  | 176,084
GNMA certificates |  | 122 |  |  | 13 |  |  | 109
FNMA and FHLMC certificates |  | 220,913 |  |  | 6,669 |  |  | 214,244
Obligations of US government and sponsored agencies |  | 10,691 |  |  | 42 |  |  | 10,649
Other debt securities |  | 20,000 |  |  | 320 |  |  | 19,680
| $ | 534,577 |  | $ | 14,996 |  | $ | 519,581
| Total
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions | $ | 121,035 |  | $ | 6,845 |  | $ | 114,190
CMOs issued by US government-sponsored agencies |  | 185,220 |  |  | 6,814 |  |  | 178,406
GNMA certificates |  | 203 |  |  | 24 |  |  | 179
FNMA and FHLMC certificates |  | 220,913 |  |  | 6,669 |  |  | 214,244
Obligations of US government and sponsored agencies |  | 10,691 |  |  | 42 |  |  | 10,649
Other debt securities |  | 20,000 |  |  | 320 |  |  | 19,680
| $ | 558,062 |  | $ | 20,714 |  | $ | 537,348
The Company performs valuations of the investment securities on a monthly basis. Moreover, the Company conducts quarterly reviews to identify and evaluate each investment in an unrealized loss position for other-than-temporary impairment. Any portion of a decline in value associated with credit loss is recognized in income with the remaining noncredit-related component recognized in other comprehensive income. A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered by comparing the present value of cash flows expected to be collected from the security, discounted at the rate equal to the yield used to accrete current and prospective beneficial interest for the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.” Other-than-temporary impairment analysis is based on estimates that depend on market conditions and are subject to further change over time. In addition, while the Company believes that the methodology used to value these exposures is reasonable, the methodology is subject to continuing refinement, including those made as a result of market developments. Consequently, it is reasonably possible that changes in estimates or conditions could result in the need to recognize additional other-than-temporary impairment charges in the future. Most of the investment ($479.0 million or 9 6%) with an unre alized loss position at September 30, 2014 consist of securities issued or guaranteed by the U.S. Treasury or U.S. government-sponsored agencies, all of which are highly liquid securities that have a large and efficient secondary market. Their aggregate losses and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthine ss of the issuers or guarantors of such securities. The remaining investments ($2 0.9 million or 4%) with an unre alized loss position at September 30, 2014 consist of obligations issued or guaranteed by the government of Puerto Rico and its political subdivisions or instrumentalities. The recent decline in the market value of these securities is mainly attributed to an increase in volatility as a result of changes in market conditions that reflect the significant economic and fiscal challenges that Puerto Rico is facing, including a protracted economic recession, sizable government debt-service obligations and structural budget deficits, high unemployment and a shrinking population. Moreover, uncertainty in regards to the impact of the recently enacted Public Corporation Debt Enforcement and Recovery Act (the “Recovery Act”) and the related subsequent negative rating decisions taken by the credit rating agencies has affected the market value of these securities. As of September 30, 2 0 14, the Company applied a discounted cash flow analysis to the Puerto Rico government bonds to calculate the cash flows expected to be collected and determine if any portion of the decline in market value of these investments was considered an other-than-temporary impairment. The analysis derives an estimate of value based on the present value of risk-adjusted future cash flows of the underlying investments, and included the following components: The contractual future cash flows of the bonds are projected based on the key terms as set forth in the official statements for each investment. Such key terms include among others the interest rate, amortization schedule, if any, and maturity date. The risk-adjusted cash flows are calculated based on monthly default probability and recovery rate assumptions based on the credit rating of each investment. Constant monthly default rates are assumed throughout the life of the bonds which are based on the respective security's credit rating as of the date of the analysis. The adjusted future cash flows are then discounted at the original effective yield of each investment based on the purchase price and expected risk-adjusted future cash flows as of the purchase date of each investment. The discounted cash flow anal ysis for the investments showed at maturity in the range of 2.509% to 15.340%, thus reflecting that it is more likely than not that the bonds will not default at all during their remaining terms (range between 84.660% and 97.491%). Based on this analysis, the Company determined that it is more likely than not that it will recover all interest and principal invested in the Puerto Rico government bonds and is therefore not required to recognize a cred it loss as of September 30, 2014.

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27290-111563 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27357-111563 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -Glossary Debt Security -URI http://asc.fasb.org/extlink&oid=6509901 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6379141&loc=d3e15032-111544 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27232-111563 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6957658&loc=d3e62557-112803 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27161-111563 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=27724398&loc=d3e27405-111563 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -Glossary Equity Security -URI http://asc.fasb.org/extlink&oid=6511694 + Details
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