Borrowings

12 Months Ended

Dec. 31, 2015

NOTE 13 — BORROWINGS AND RELATED INTEREST

Securities Sold under Agreements to Repurchase

At December 31, 2015, securities underlying agreements to repurchase were delivered to, and are being held by, the counterparties with whom the repurchase agreements were transacted. The counterparties have agreed to resell to the Company the same or similar securities at the maturity of these agreements.

At December 31, 2015 and 2014, securities sold under agreements to repurchase (classified by counterparty), excluding accrued interest in the amount of $2.2 million and $2.3 million, respectively, were as follows:

	December 31,
	2015				2014
			Fair Value of				Fair Value of
	Borrowing		Underlying		Borrowing		Underlying
	Balance		Collateral		Balance		Collateral
	(In thousands)
JP Morgan Chase Bank NA		262,500		283,483		307,816		328,198
Credit Suisse Securities (USA) LLC		670,000		737,887		670,000		760,327
Total	$	932,500	$	1,021,370	$	977,816	$	1,088,525

The following table shows a summary of the Company’s repurchase agreements and their terms, excluding accrued interest in the amount of $2.2 million, at December 31, 2015:

			Weighted-
	Borrowing		Average		Maturity
Year of Maturity	Balance		Coupon	Settlement Date	Date
	(In thousands)
2016		170,000	1.500%	12/6/2012	12/8/2016
		232,500	0.950%	12/10/2012	9/30/2016
		30,000	0.700%	12/3/2015	1/5/2016

2017		500,000	4.780%	3/2/2007	3/2/2017
	$	932,500	3.100%

The following table presents the repurchase liability associated with the repurchase agreement transactions (excluding accrued interest) by maturity. Also, it includes the carrying value and approximate market value of collateral (excluding accrued interest) at December 31, 2015 and 2014. There was no cash collateral at December 31, 2015 and 2014.

	December 31, 2015
					Market Value of Underlying Collateral

			Weighted		FNMA and					US Treasury
	Repurchase		Average		FHLMC		GNMA			Treasury
	Liability		Rate		Certificates		Certificates			Notes	Total
	(Dollars in thousands)
Less than 90 days		30,000		0.70%		31,961		-		-		31,961
Over 90 days		902,500		3.18%		974,698		2,131		12,580		989,409
Total	$	932,500		3.10%	$	1,006,659	$	2,131	$	12,580	$	1,021,370

	December 31, 2014
					Market Value of Underlying Collateral

			Weighted		FNMA and
	Repurchase		Average		FHLMC		GNMA
	Liability		Rate		Certificates		Certificates		Total
	(Dollars in thousands)
Less than 90 days	$	52,816		0.39%	$	56,066	$	-	$	56,066
Over 90 days		925,000		2.83%		1,031,206		1,253		1,032,459

Total	$	977,816		2.89%	$	1,087,272	$	1,253	$	1,088,525

The following summarizes significant data on securities sold under agreements to repurchase as of December 31, 2015 and 2014, excluding accrued interest:

	December 31,
	2015		2014
	(In thousands)
Average daily aggregate balance outstanding	$	1,012,756	$	1,041,378
Maximum outstanding balance at any month-end	$	1,158,945	$	1,149,167
Weighted average interest rate during the year		2.92%		2.85%
Weighted average interest rate at year end		3.10%		2.95%

Advances from the Federal Home Loan Bank of New York

Advances are received from the Federal Home Loan Bank of New York (the “FHLB-NY”) under an agreement whereby the Company is required to maintain a minimum amount of qualifying collateral with a fair value of at least 110% of the outstanding advances. At December 31, 2015 and 2014, these advances were secured by mortgage and commercial loans amounting to $1.3 billion and $1.2 billion, respectively. Also, at December 31, 2015 and 2014, the Company had an additional borrowing capacity with the FHLB-NY of $770.6 million and $606.6 million, respectively. At December 31, 2015 and 2014, the weighted average remaining maturity of FHLB’s advances was 6.3 months and 8.8 months, respectively. The original terms of these advances range between one month and seven years, and the FHLB-NY does not have the right to exercise put options at par on any advances outstanding as of December 31, 2015.

The following table shows a summary of these advances and their terms, excluding accrued interest in the amount of $362 thousand, at December 31, 2015:

			Weighted-
		Borrowing	Average		Maturity
Year of Maturity		Balance	Coupon	Settlement Date	Date
		(In thousands)
2016	$	25,000	0.56%	12/4/2015	1/4/2016
		50,000	0.66%	12/10/2015	1/11/2016
		100,000	0.64%	12/16/2015	1/19/2016
		25,000	0.59%	12/24/2015	1/25/2016
		25,000	0.53%	12/30/2015	1/29/2016
		37,982	0.49%	12/1/2015	1/4/2016
		262,982

2017		4,267	1.24%	4/3/2012	4/3/2017

2018		30,000	2.19%	1/16/2013	1/16/2018
		25,000	2.18%	1/16/2013	1/16/2018
		55,000

2020		9,865	2.59%	7/19/2013	7/20/2020
	$	332,114	0.93%

All of the advances referred to above with maturity dates up to the date of this report were renewed as one-month short-term advances.

Subordinated Capital Notes

Subordinated capital notes amounted to $102.6 million and $101.6 million at December 31, 2015 and 2014, respectively.

In August 2003, the Statutory Trust II, a special purpose entity of the Company, was formed for the purpose of issuing trust redeemable preferred securities. In September 2003, $35.0 million of trust redeemable preferred securities were issued by the Statutory Trust II as part of a pooled underwriting transaction.

The proceeds from this issuance were used by the Statutory Trust II to purchase a like amount of a floating rate junior subordinated deferrable interest debenture issued by the Company. The subordinated deferrable interest debenture has a par value of $36.1 million, bears interest based on 3-month LIBOR plus 295 basis points (3.48% at December, 2015; 3.19% at December 31, 2014), is payable quarterly, and matures on September 17, 2033. It may be called at par after five years and quarterly thereafter (next call date March 2016). The trust redeemable preferred securities have the same maturity and call provisions as the subordinated deferrable interest debenture. The subordinated deferrable interest debenture issued by the Company is accounted for as a liability denominated as a subordinated capital note on the consolidated statements of financial condition.

The subordinated capital note is treated as Tier 1 capital for regulatory purposes. Under the Dodd-Frank Act and the new capital rules issued by the federal banking regulatory agencies in July 2013, bank holding companies are prohibited from including in their Tier 1 capital hybrid debt and equity securities, including trust preferred securities, issued on or after May 19, 2010. Any such instruments issued before May 19, 2010 by a bank holding company, such as the Company, with total consolidated assets of less than $15 billion as of December 31, 2009, may continue to be included as Tier 1 capital. Therefore, the Company is permitted to continue to include its existing trust preferred securities as Tier 1 capital.

Following are the outstanding subordinated capital notes, which are not trust preferred securities, and were assumed as part of the BBVAPR Acquisition on December 18, 2012:

Subordinated capital notes issued in September 2006 amounting to $37.0 million at a fixed rate of 5.76% through September 29, 2011, and three-month LIBOR plus 1.56% thereafter (2.16% at December 31, 2015; 1.81 %at December 31, 2014), due September 29, 2016. Interest on these subordinated notes is payable quarterly during the floating-rate period. The Bank has the option to redeem these subordinated capital notes in whole or in part from time to time before maturity at 100% of the principal amount plus any accrued but unpaid interest to the date of redemption, beginning September 29, 2011, and at each payment date thereafter.

Subordinated capital notes issued in September 2006 amounting to $30.0 million at a variable rate of three-month LIBOR plus 1.56% thereafter (2.16% at December 31, 2015; 1.81% at December 31, 2014), due September 29, 2016. Interest on these subordinated notes is payable quarterly. The Bank has the option to redeem these subordinated capital notes in whole or in part from time to time before maturity at 100% of the principal amount plus any accrued but unpaid interest to the date of redemption, beginning September 29, 2011, and at each payment date thereafter.

These notes qualified as Tier 2 capital at a discounted rate, which totaled $13.4 million at December 31, 2014. They have been fully discounted at December 31, 2015. Generally speaking, subordinated notes are included as Tier 2 capital if they have an original weighted average maturity of at least 5 years and comply with certain other requirements. As the notes approach maturity, they begin to take on characteristics of a short term obligation. For this reason, the outstanding amount eligible for inclusion in Tier 2 capital is reduced, or discounted, as the instruments approach maturity: one fifth of the outstanding amount is excluded each year during the instruments last five years before maturity. When the remaining maturity is less than one year, the instrument is excluded from Tier 2 capital.

Under the requirements of Puerto Rico Banking Act, the Bank must establish a redemption fund for the subordinated capital notes by transferring from undivided profits pre-established amounts as follows:

	Redemption fund
	(In thousands)
Redemption fund at December 31, 2015	$	61,975
2016		5,025
	$	67,000

Other borrowings

Other borrowings, presented in the consolidated statements of financial condition amounted to $1.7 million and $4.0 million at December 31, 2015 and December 31, 2014, respectively, which mainly consists of unsecured fixed-rate borrowings. For both periods, the unsecured fixed rate borrowings amounted to $1.7 million at a fixed rate of 3.0%. There are no term notes at December 31, 2015; however, at December 31, 2014, term notes tied to the S&P index amounted to $1.0 million with an index appreciation of $1.3 million.