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Investment Securities | 12 Months Ended
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Dec. 31, 2015
Investments [Abstract] |
Securities Purchased Under Agreements To Resell And 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 December 31, 2015 and 2014, money market instruments included as part of cash and cash equivalents amounted to $4.7 million in both periods. Investment Securities The amortized cost, gross unrealized gains and losses, fair value, and weighted average yield of the securities owned by the Company at December 31, 2015 and 2014 were as follows:
| December 31, 2015
|  |  | 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 | $ | 735,363 |  | $ | 25,791 |  | $ | 1,509 |  | $ | 759,645 |  | 2.97%
GNMA certificates |  | 57,129 |  |  | 1,366 |  |  | - |  |  | 58,495 |  | 3.19%
CMOs issued by US government-sponsored agencies |  | 137,787 |  |  | 27 |  |  | 2,741 |  |  | 135,073 |  | 1.85%
Total mortgage-backed securities |  | 930,279 |  |  | 27,184 |  |  | 4,250 |  |  | 953,213 |  | 2.82%
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of US government-sponsored agencies |  | 5,122 |  |  | - |  |  | 29 |  |  | 5,093 |  | 1.36%
Obligations of Puerto Rico government and political subdivisions |  | 17,801 |  |  | - |  |  | 4,070 |  |  | 13,731 |  | 6.24%
Other debt securities |  | 2,444 |  |  | 128 |  |  | - |  |  | 2,572 |  | 2.98%
Total investment securities |  | 25,367 |  |  | 128 |  |  | 4,099 |  |  | 21,396 |  | 4.94%
Total securities available for sale | $ | 955,646 |  | $ | 27,312 |  | $ | 8,349 |  | $ | 974,609 |  | 2.87%
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 595,157 |  |  | 426 |  |  | 5,865 |  |  | 589,718 |  | 2.24%
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
US Treasury securities |  | 25,032 |  |  | - |  |  | 71 |  |  | 24,961 |  | 0.49%
Total securities held to maturity |  | 620,189 |  |  | 426 |  |  | 5,936 |  |  | 614,679 |  | 2.17%
Total | $ | 1,575,835 |  | $ | 27,738 |  | $ | 14,285 |  | $ | 1,589,288 |  | 2.60%
| December 31, 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 | $ | 972,836 |  | $ | 37,876 |  | $ | 1,203 |  | $ | 1,009,509 |  | 3.12%
GNMA certificates |  | 4,473 |  |  | 288 |  |  | 8 |  |  | 4,753 |  | 4.94%
CMOs issued by US government-sponsored agencies |  | 179,146 |  |  | 136 |  |  | 3,153 |  |  | 176,129 |  | 1.81%
Total mortgage-backed securities |  | 1,156,455 |  |  | 38,300 |  |  | 4,364 |  |  | 1,190,391 |  | 2.92%
Investment securities |  |  |  |  |  |  |  |  |  |  |  |  |
Obligations of US government-sponsored agencies |  | 7,148 |  |  | 33 |  |  | - |  |  | 7,181 |  | 1.34%
Obligations of Puerto Rico government and public instrumentalities |  | 20,939 |  |  | - |  |  | 5,267 |  |  | 15,672 |  | 5.41%
Other debt securities |  | 3,137 |  |  | 157 |  |  | - |  |  | 3,294 |  | 2.95%
Total investment securities |  | 31,224 |  |  | 190 |  |  | 5,267 |  |  | 26,147 |  | 4.23%
Total securities available-for-sale | $ | 1,187,679 |  | $ | 38,490 |  | $ | 9,631 |  | $ | 1,216,538 |  | 2.96%
Held-to-maturity |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates |  | 162,752 |  |  | 1,402 |  |  | - |  |  | 164,154 |  | 2.48%
Total | $ | 1,350,431 |  | $ | 39,892 |  | $ | 9,631 |  | $ | 1,380,692 |  | 2.90%
The amortized cost and fair value of the Company’s investment securities at December 31, 2015, 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.
| December 31, 2015
| 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 | $ | 15,098 |  | $ | 15,228 |  | $ | - |  | $ | -
Total due after 5 to 10 years |  | 15,098 |  |  | 15,228 |  |  | - |  |  | -
Due after 10 years |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates |  | 720,265 |  |  | 744,417 |  |  | 595,157 |  |  | 589,718
GNMA certificates |  | 57,129 |  |  | 58,495 |  |  | - |  |  | -
CMOs issued by US government-sponsored agencies |  | 137,787 |  |  | 135,073 |  |  | - |  |  | -
Total due after 10 years |  | 915,181 |  |  | 937,985 |  |  | 595,157 |  |  | 589,718
Total mortgage-backed securities |  | 930,279 |  |  | 953,213 |  |  | 595,157 |  |  | 589,718
Investment securities |  |  |  |  |  |  |  |  |  |  |
Due from 1 to 5 years |  |  |  |  |  |  |  |  |  |  |
US Treasury securities |  | - |  |  | - |  |  | 25,032 |  |  | 24,961
Obligations of Puerto Rico government and political subdivisions |  | 8,733 |  |  | 7,438 |  |  | - |  |  | -
Total due from 1 to 5 years |  | 8,733 |  |  | 7,438 |  |  | 25,032 |  |  | 24,961
Due after 5 to 10 years |  |  |  |  |  |  |  |  |  |  |
Obligations of US government and sponsored agencies |  | 5,122 |  |  | 5,093 |  |  | - |  |  | -
Total due after 5 to 10 years |  | 5,122 |  |  | 5,093 |  |  | - |  |  | -
Due after 10 years |  |  |  |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions |  | 9,068 |  |  | 6,293 |  |  | - |  |  | -
Other debt securities |  | 2,444 |  |  | 2,572 |  |  | - |  |  | -
Total due after 10 years |  | 11,512 |  |  | 8,865 |  |  | - |  |  | -
Total investment securities |  | 25,367 |  |  | 21,396 |  |  | 25,032 |  |  | 24,961
Total securities available-for-sale | $ | 955,646 |  | $ | 974,609 |  | $ | 620,189 |  | $ | 614,679
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 pur chased. During the years ended 2015, 2014 and 2013, the Company sold $63.5 million, $99.4 million and $141.2 million, respectively, of available-for-s ale Government National Mortgage Association (“GNMA”) certificates as part of its recurring mortgage loan origination and securitization activities. These sales did not realize any gains or losses during such periods. During the year ended December 31, 201 5, the Company retained securitized GNMA pools totaling $54.5 million amortized cost, at a yield of 3.09% from its own originations. Previously, the Company was selling all securitized GNMA pools. For the year s ended December 31, 2015 and 2014, the Compan y recorded a net gain on sale of securities of $2.6 million and $4.4 million, respectively and a net loss of $35 thousand for the year ended December 31, 2013. The table below presents the gross realized gains and losses by category for such periods
| Year Ended December 31, 2015
|  |  | Book Value |  |  |  |
Description | Sale Price |  | at Sale |  | Gross Gains |  | Gross Losses
| (In thousands)
Sale of securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 40,307 |  | $ | 37,736 |  | $ | 2,571 |  | $ | -
GNMA certificates |  | 63,524 |  |  | 63,523 |  |  | 1 |  |  | -
Total | $ | 103,831 |  | $ | 101,259 |  | $ | 2,572 |  | $ | -
| Year Ended December 31, 2014
|  |  | Book Value |  |  |  |
Description | Sale Price |  | at Sale |  | Gross Gains |  | Gross Losses
| (In thousands)
Sale of securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |
FNMA and FHLMC certificates | $ | 115,158 |  | $ | 110,792 |  | $ | 4,366 |  | $ | -
GNMA certificates |  | 99,360 |  |  | 99,360 |  |  | - |  |  | -
Total mortgage-backed securities | $ | 214,518 |  | $ | 210,152 |  | $ | 4,366 |  | $ | -
| Year Ended December 31, 2013
|  |  | Book Value |  |  |  |
Description | Sale Price |  | at Sale |  | Gross Gains |  | Gross Losses
| (In thousands)
Sale of securities available-for-sale |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  |  |  |  |  |  |  |  |  |  |
GNMA certificates | $ | 141,202 |  | $ | 141,237 |  |  | - |  | $ | 35
Total mortgage-backed securities | $ | 141,202 |  | $ | 141,237 |  | $ | - |  | $ | 35
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 December 31, 2015 and 2014:
| December 31, 2015
| 12 months or more
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies | $ | 103,340 |  | $ | 2,410 |  | $ | 100,930
Obligations of Puerto Rico government and political subdivisions |  | 17,801 |  |  | 4,070 |  |  | 13,731
| $ | 121,141 |  | $ | 6,480 |  | $ | 114,661
| Less than 12 months
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US Government-sponsored agencies |  | 25,736 |  | $ | 331 |  | $ | 25,405
FNMA and FHLMC certificates | $ | 149,480 |  | $ | 1,509 |  | $ | 147,971
Obligations of US government and sponsored agencies |  | 5,122 |  | $ | 29 |  | $ | 5,093
Securities held-to-maturity |  |  |  |  |  |  |  |
FNMA and FHLMC Certificates |  | 468,487 |  |  | 5,865 |  |  | 462,622
US Treausury Securities |  | 25,032 |  |  | 71 |  |  | 24,961
| $ | 673,857 |  | $ | 7,805 |  | $ | 666,052
| Total
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US Government-sponsored agencies | $ | 129,076 |  |  | 2,741 |  | $ | 126,335
FNMA and FHLMC certificates |  | 149,480 |  |  | 1,509 |  |  | 147,971
Obligations of Puerto Rico Government and political subdivisions |  | 17,801 |  |  | 4,070 |  |  | 13,731
Obligations of US government and sponsored agencies |  | 5,122 |  |  | 29 |  |  | 5,093
|  | 301,479 |  |  | 8,349 |  |  | 293,130
Securities held-to-maturity |  |  |  |  |  |  |  |
FNMA and FHLMC certificates |  | 468,487 |  |  | 5,865 |  |  | 462,622
US Treasury Securities |  | 25,032 |  |  | 71 |  |  | 24,961
| $ | 794,998 |  | $ | 14,285 |  | $ | 780,713
| December 31, 2014
| 12 months or more
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
Obligations of Puerto Rico government and political subdivisions | $ | 20,939 |  | $ | 5,267 |  | $ | 15,672
CMOs issued by US government-sponsored agencies |  | 143,928 |  |  | 3,086 |  |  | 140,842
FNMA and FHLMC certificates |  | 113,376 |  |  | 1,172 |  |  | 112,204
GNMA certificates |  | 77 |  |  | 8 |  |  | 69
| $ | 278,320 |  | $ | 9,533 |  | $ | 268,787
| Less than 12 months
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies |  | 15,172 |  |  | 67 |  |  | 15,105
FNMA and FHLMC certificates |  | 63,736 |  |  | 31 |  |  | 63,705
| $ | 78,908 |  | $ | 98 |  | $ | 78,810
| Total
| Amortized |  | Unrealized |  | Fair
| Cost |  | Loss |  | Value
| (In thousands)
Securities available-for-sale |  |  |  |  |  |  |  |
CMOs issued by US government-sponsored agencies |  | 159,100 |  |  | 3,153 |  |  | 155,947
FNMA and FHLMC certificates |  | 177,112 |  |  | 1,203 |  |  | 175,909
Obligations of Puerto Rico government and political subdivisions |  | 20,939 |  |  | 5,267 |  |  | 15,672
GNMA certificates |  | 77 |  |  | 8 |  |  | 69
| $ | 357,228 |  | $ | 9,631 |  | $ | 347,597
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 dec line in value associated with credit loss is recognized in the statements of operations with the remaining noncredit-related component recognized in other comprehensive income (loss). A credit loss is determined by assessing whether the amortized cost basi s 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 shortfa ll 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 subjec t 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. Consequen tly, 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 investments ($777.2 million, amortized cost, or 98%) with an unreal ized loss position at December 31, 2015 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 loss es and their variability from period to period are the result of changes in market conditions, and not due to the repayment capacity or creditworthiness of the issuers or guarantors of such securities. The remaining investments ($17.8 million, amortized c ost, or 2%) with an unrealized loss position at December 31, 2015 consist of obligations issued or guaranteed by the government of Puerto Rico and its political subdivisions or instrumentalities. The decline in the market value of these securities is main ly 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 obliga tions and structural budget deficits, high unemployment and a shrinking population. Moreover, the negative rating decisions taken by the credit rating agencies have affected the market value and liquidity of these securities. As of December 31, 2015, th e Company performed a cash flow analysis of its 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 impair ment. 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 k ey 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 a monthly default probabilit y 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 adjust ed 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. For PRHTA obligation totaling $6.7 million, am ortized cost, or 36% of the obligations issued or guaranteed by the government of Puerto Rico and its political subdivisions or instrumentalities, the discounted cash flow analysis for the investments showed a cumulative default probability at maturity of 9.78%, thus reflecting that it is more likely than not that the bonds will not default at all during their remaining terms. Based on this analysis, the Company determined that it is more likely than not that it will recover all interest and principal inves ted in t his Puerto Rico government bond and is therefore not required to recognize a credit loss as of December 31, 2015. Also, the Company’s conclusion is based on the assessment of the specific source of repayment of th e outstanding bond, which continue s to perform. PRHTA started principal repayment s on July 1, 2014. All scheduled principal and interest payments are being collected. For PRIDCO and PBA obligations amounting to $12.6 million, amortized cost, or 64% of the Puerto Rico government debt secu rities held by the Company, the discounted cash flow analysis showed a cumulative default at matu rity in the range up to 46.03% using a recovery rate of 65%. Taking into consideration that the PBA bonds are guaranteed by the full faith and credit of the Co mmonwealth of Puerto Rico and the recent downgrades of the general obligation debts after the government announced it needs to restructure its debt, the Company concluded that it is more likely than not that this bond will default during its remaining term until maturity in 2028. Based on the above, during the year ended December 31, 2015 an other-than-temporary impairment was recorded in earnings for the amount of $1.5 million, which represents the estimated loss resulting from the discounted cash flow ana lysis. The non-credit related portion of the unrealized losses amounting to $3.2 million was recognized in other comprehensive income, net of related taxes. Prospectively, for debt securities for which other-than-temporary impairments was recognized in e arnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted as interest income. If upon subsequent evaluation, there is a significant increase in the cash flows expected to be collected or if ac tual cash flows are significantly greater than cash flows previously expected, such changes will be accounted for as a prospective adjustment to the accretable yield. Subsequent increases and decreases (if not other-than-temporary impairment) in the fair v alue of available-for-sale securities will be included in other comprehensive income (loss). Further negative evidence impacting the liquidity and sources of repayment of the obligations of Puerto Rico and its political subdivisions, could result in a further charge to earnings to recognize estimated credit losses determined to be other-than-temporary. At December 31, 2015, t he Company has cash flow capacity, sufficient liquidity and a strong capital position to maintain the bonds and does not need to sell them in a loss position and it is not likely that the Company will have to sell the investment securities prior to recovery of their amortized cost basis. The following table presents a rollforward of credit-related impairment losses recognized in ea rnings for the year ended December 31, 2015 (non in 2014 and 2013) on available-for-sale securities that the Company does not have the intent to sell or will not more-likely-than-not be required to sell:
|  | Year Ended December 31,
|  | 2015
Balance at beginning of year |  | $ | -
Additions from credit losses recognized on available-for-sale securities that had no previous impairment losses |  |  | 1,490
Balance at end of year |  | $ | 1,490

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