INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities Available for Sale

The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) on securities with changes in fair value recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximate fair value, weighted-average yield and contractual maturities of investment securities available for sale were as follows:

	September 30, 2012												December 31, 2011
	Amortized cost		Non-Credit Loss Component of OTTI Recorded in OCI		Gross Unrealized				Fair value		Weighted average yield%		Amortized cost		Non-Credit Loss Component of OTTI Recorded in OCI		Gross Unrealized				Fair value		Weighted average yield%
(Dollars in thousands)					gains		losses										gains		losses
U.S. Treasury securities:
Due within one year	$	7,494	$	—	$	1	$	—	$	7,495		0.17	$	476,665	$	—	$	327	$	—	$	476,992		0.34
Obligations of U.S. Government sponsored agencies:
Due within one year		—		—		—		—		—		—		300,381		—		1,204		—		301,585		1.15
After 1 to 5 years		25,650		—		11		—		25,661		0.35		—		—		—		—		—		—
Puerto Rico Government obligations:
Due within one year		—		—		—		—		—		—		8,560		—		110		—		8,670		4.20
After 1 to 5 years		—		—		—		—		—		—		70,590		—		171		1		70,760		2.63
After 5 to 10 years		39,744		—		1,335		—		41,079		4.49		118,186		—		76		13		118,249		5.07
After 10 years		21,102		—		1,190		25		22,267		5.78		24,154		—		781		1		24,934		5.74
United States and Puerto Rico Government obligations		93,990		—		2,537		25		96,502		3.31		998,536		—		2,669		15		1,001,190		1.47
Mortgage-backed securities:
FHLMC certificates:
Due within one year		206		—		1		—		207		3.57		—		—		—		—		—		—
After 1 to 5 years		—		—		—		—		—		—		928		—		8		—		936		3.67
After 10 years		135,512		—		4,186		—		139,698		2.28		24,974		—		238		—		25,212		2.59
		135,718		—		4,187		—		139,905		2.28		25,902		—		246		—		26,148		2.62
GNMA certificates:
After 1 to 5 years		159		—		8		—		167		3.59		179		—		9		—		188		3.88
After 5 to 10 years		562		—		45		—		607		3.60		596		—		47		—		643		4.09
After 10 years		604,294		—		44,793		—		649,087		4.00		717,237		—		43,938		—		761,175		3.98
		605,015		—		44,846		—		649,861		4.00		718,012		—		43,994		—		762,006		3.98
FNMA certificates:
Due within one year		282		—		10		—		292		3.55		—		—		—		—		—		—
After 1 to 5 years		—		—		—		—		—		—		1,019		—		42		—		1,061		3.82
After 5 to 10 years		14,517		—		810		—		15,327		4.04		18,826		—		1,007		—		19,833		3.97
After 10 years		624,983		—		15,872		—		640,855		2.56		47,485		—		3,285		—		50,770		5.46
		639,782		—		16,692		—		656,474		2.59		67,330		—		4,334		—		71,664		5.02
Collateralized Mortgage Obligations issued or guaranteed by FHLMC,
After 5 to 10 years		377		—		—		1		376		3.01		—		—		—		—		—		—
Other mortgage pass-through trust certificates:
After 10 years		72,555		31,951		14,085		—		54,689		2.34		85,014		31,951		8,143		—		61,206		2.19
Total mortgage-backed securities		1,453,447		31,951		79,810		1		1,501,305		3.13		896,258		31,951		56,717		—		921,024		3.85
Corporate bonds:
After 10 years		—		—		—		—		—		—		1,447		434		—		—		1,013		5.80
Equity securities (without contractual maturity)(1)		77		—		—		37		40		—		77		—		—		36		41		—
Total investment securities available for sale	$	1,547,514	$	31,951	$	82,347	$	63	$	1,597,847		3.15	$	1,896,318	$	32,385	$	59,386	$	51	$	1,923,268		2.60

(1) Represents common shares of another financial institution in Puerto Rico.

Available-for-Sale Investments' Fair Value and Gross Unrealized Losses

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 September 30, 2012 and December 31, 2011. It also includes debt securities for which an OTTI was recognized and only the amount related to a credit loss was recognized in earnings. Unrealized losses for which OTTI had been recognized have been reduced by any subsequent recoveries in fair value:

	As of September 30, 2012
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Debt securities:
Puerto Rico Government obligations	$	2,065	$	25	$	—	$	—	$	2,065	$	25
Mortgage-backed securities:
Collateralized mortgage obligations issued or guaranteed by FHLMC		376		1		—		—		376		1
Other mortgage pass-through trust certificates		—		—		54,540		17,867		54,540		17,867
Equity securities		—		—		40		37		40		37
	$	2,441	$	26	$	54,580	$	17,904	$	57,021	$	17,930

	As of December 31, 2011
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Debt securities:
Puerto Rico Government obligations	$	15,982	$	15	$	—	$	—	$	15,982	$	15
Mortgage-backed securities:
Other mortgage pass-through trust certificates		—		—		61,017		23,809		61,017		23,809
Corporate bonds		—		—		1,013		434		1,013		434
Equity securities		41		36		—		—		41		36
	$	16,023	$	51	$	62,030	$	24,243	$	78,053	$	24,294

OTTI Losses on Available-for-Sale Debt Securities

The Corporation recorded OTTI losses on available-for-sale debt securities as follows:

	Private label MBS						Private label MBS
	Quarter ended September 30,						Nine-Month Period Ended September 30,
(In thousands)	2012			2011			2012			2011
Total other-than-temporary impairment losses	$	—		$	—		$	—		$	—
Portion of loss previously recognized in other comprehensive income		(557	)		(350	)		(1,933	)		(957	)
Net impairment losses recognized in earnings	$	(557	)	$	(350	)	$	(1,933	)	$	(957	)

Roll-Forward of Credit Losses on Debt Securities Held by Corporation

The following table summarizes the roll-forward of credit losses on debt securities held by the Corporation for which a portion of an OTTI is recognized in OCI:

	Quarter ended September 30,				Nine-Month Period Ended September 30,
(In thousands)	2012		2011		2012		2011
Credit losses at the beginning of the period	$	5,199	$	2,459	$	3,823	$	1,852
Additions:
Credit losses on debt securities for which an OTTI was previously recognized (1)		557		350		1,933		957
Ending balance of credit losses on debt securities held for which a portion of an OTTI was recognized in OCI	$	5,756	$	2,809	$	5,756	$	2,809

(1) Related to private label MBS.

Significant Assumptions in Valuation of Private Label MBS

Significant assumptions in the valuation of the private label MBS were as follow:

	September 30, 2012			December 31, 2011
	Weighted Average		Range	Weighted Average		Range
Discount rate		14.5%	14.5%		14.5%	14.5%
Prepayment rate		33%	23.81% - 43.58%		27%	21.33% -37.97%
Projected Cumulative Loss Rate		7%	0.71% - 17.51%		6%	1.94% - 11.89%