Investment securities

12 Months Ended

Dec. 31, 2011

Available-for-sale Securities

Note 8 – Investment securities available-for-sale

The following table presents the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities available-for-sale at December 31, 2011 and 2010 (2009 - only fair value is presented).

		2011
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
U.S. Treasury securities
	After 1 to 5 years	$	34,980	$	3,688	$	-	$	38,668	3.35	%
Total U.S. Treasury securities			34,980		3,688		-		38,668	3.35
Obligations of U.S. Government sponsored entities
	Within 1 year		94,492		2,382		-		96,874	3.45
	After 1 to 5 years		655,625		25,860		-		681,485	3.38
	After 5 to 10 years		171,633		2,969		-		174,602	2.94
	After 10 years		32,086		499		-		32,585	3.20
Total obligations of U.S. Government sponsored entities			953,836		31,710		-		985,546	3.30
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year		765		9		-		774	4.97
	After 1 to 5 years		14,824		283		31		15,076	4.07
	After 5 to 10 years		4,595		54		-		4,649	5.33
	After 10 years		37,320		909		-		38,229	5.38
Total obligations of Puerto Rico, States and political subdivisions			57,504		1,255		31		58,728	5.03
Collateralized mortgage obligations - federal agencies
	After 1 to 5 years		2,424		49		-		2,473	3.28
	After 5 to 10 years		55,096		1,446		-		56,542	2.64
	After 10 years		1,589,373		49,462		208		1,638,627	2.84
Total collateralized mortgage obligations - federal agencies			1,646,893		50,957		208		1,697,642	2.83
Collateralized mortgage obligations - private label
	After 5 to 10 years		5,653		1		181		5,473	0.81
	After 10 years		59,460		-		7,141		52,319	2.44
Total collateralized mortgage obligations - private label			65,113		1		7,322		57,792	2.30
Mortgage-backed securities
	Within 1 year		57		1		-		58	3.91
	After 1 to 5 years		7,564		328		-		7,892	3.86
	After 5 to 10 years		111,639		8,020		1		119,658	4.66
	After 10 years		1,870,736		141,274		49		2,011,961	4.25
Total mortgage-backed securities			1,989,996		149,623		50		2,139,569	4.27
Equity securities (without contractual maturity)			6,594		426		104		6,916	2.96
Other
	After 5 to 10 years		17,850		700		-		18,550	10.99
	After 10 years		6,311		101		-		6,412	3.61
Total other			24,161		801		-		24,962	9.06
Total investment securities available-for-sale		$	4,779,077	$	238,461	$	7,715	$	5,009,823	3.58	%

		2010										2009
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average		Fair
(In thousands)		cost		gains		losses		value		yield		value
U.S. Treasury securities
	After 1 to 5 years	$	7,001	$	122	$	-	$	7,123	1.50	%	$	-
	After 5 to 10 years		28,676		2,337		-		31,013	3.81			30,452
Total U.S. Treasury securities			35,677		2,459		-		38,136	3.36			30,452
Obligations of U.S. Government sponsored entities
	Within 1 year		153,738		2,043		-		155,781	3.39			356,915
	After 1 to 5 years		1,000,955		53,681		661		1,053,975	3.72			1,235,469
	After 5 to 10 years		1,512		36		-		1,548	6.30			28,492
	After 10 years		-		-		-		-	-			27,060
Total obligations of U.S. Government sponsored entities			1,156,205		55,760		661		1,211,304	3.68			1,647,936
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year		10,404		19		-		10,423	3.92			-
	After 1 to 5 years		15,853		279		5		16,127	4.52			22,303
	After 5 to 10 years		20,765		43		194		20,614	5.07			50,527
	After 10 years		5,505		52		19		5,538	5.28			7,779
Total obligations of Puerto Rico, States and political
	subdivisions		52,527		393		218		52,702	4.70			80,609
Collateralized mortgage obligations - federal agencies
	Within 1 year		77		1		-		78	3.88			41
	After 1 to 5 years		1,846		105		-		1,951	4.77			4,995
	After 5 to 10 years		107,186		1,507		936		107,757	2.50			127,098
	After 10 years		1,096,271		32,248		11		1,128,508	2.87			1,468,056
Total collateralized mortgage obligations - federal agencies			1,205,380		33,861		947		1,238,294	2.84			1,600,190
Collateralized mortgage obligations - private label
	After 5 to 10 years		10,208		31		158		10,081	1.20			20,232
	After 10 years		79,311		78		4,532		74,857	2.29			97,326
Total collateralized mortgage obligations - private label			89,519		109		4,690		84,938	2.17			117,558
Mortgage-backed securities
	Within 1 year		2,983		101		-		3,084	3.62			27,390
	After 1 to 5 years		15,738		649		3		16,384	3.98			30,940
	After 5 to 10 years		170,662		10,580		3		181,239	4.71			214,261
	After 10 years		2,289,210		86,870		632		2,375,448	4.26			2,937,588
Total mortgage-backed securities			2,478,593		98,200		638		2,576,155	4.29			3,210,179
Equity securities (without contractual maturity)			8,722		855		102		9,475	3.43			7,790
Other
	After 5 to 10 years		17,850		262		-		18,112	10.98			-
	After 10 years		7,805		-		69		7,736	3.62			-
Total other			25,655		262		69		25,848	8.74			-
Total investment securities available-for-sale		$	5,052,278	$	191,899	$	7,325	$	5,236,852	3.78	%	$	6,694,714

The weighted average yield on investment securities available-for-sale is based on amortized cost; therefore, it does not give effect to changes in fair value.

Securities not due on a single contractual maturity date, such as mortgage-backed securities and collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations, mortgage-backed securities and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following table presents the aggregate amortized cost and fair value of investment securities available-for-sale at December 31, 2011, by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	95,314	$	97,706
After 1 to 5 years		715,417		745,594
After 5 to 10 years		366,466		379,474
After 10 years		3,595,286		3,780,133
Total		4,772,483		5,002,907
Equity securities		6,594		6,916
Total investment securities available-for-sale	$	4,779,077	$	5,009,823

Proceeds from the sale of investment securities available-for-sale during 2011 were $ 262.4 million (2010 - $397.1 million; 2009 - $3.8 billion). Gross realized gains and losses on the sale of investment securities available-for-sale, for the years ended December 31, 2011, 2010 and 2009 were as follows:

	For the year ended December 31,
(In thousands)		2011		2010		2009
Gross realized gains	$	8,514	$	3,768	$	184,705
Gross realized losses		(130)		(6)		(361)
Net realized gains on sale of investment securities available-for-sale	$	8,384	$	3,762	$	184,344

The following tables present the Corporation's fair value and gross unrealized losses of investment securities available-for-sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011, and 2010.

		At December 31, 2011

		Less than 12 months				12 months or more				Total
				Gross				Gross				Gross
		Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)		value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political
	subdivisions	$	7,817	$	28	$	191	$	3	$	8,008	$	31
Collateralized mortgage obligations - federal agencies			90,543		208		-		-		90,543		208
Collateralized mortgage obligations - private label			13,595		539		44,148		6,783		57,743		7,322
Mortgage-backed securities			5,577		14		1,466		36		7,043		50
Equity securities			5,199		95		2		9		5,201		104
Total investment securities available-for-sale in an
	unrealized loss position	$	122,731	$	884	$	45,807	$	6,831	$	168,538	$	7,715

		At December 31, 2010

		Less than 12 months				12 months or more				Total
				Gross				Gross				Gross
		Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)		value		losses		value		losses		value		losses
Obligations of U.S. Government sponsored entities		$	24,284	$	661	$	-	$	-	$	24,284	$	661
Obligations of Puerto Rico, States and political
	subdivisions		19,357		213		303		5		19,660		218
Collateralized mortgage obligations - federal agencies			40,212		945		2,505		2		42,717		947
Collateralized mortgage obligations - private label			21,231		292		52,302		4,398		73,533		4,690
Mortgage-backed securities			33,261		406		9,257		232		42,518		638
Equity securities			3		8		43		94		46		102
Other			7,736		69		-		-		7,736		69
Total investment securities available-for-sale in an
	unrealized loss position	$	146,084	$	2,594	$	64,410	$	4,731	$	210,494	$	7,325

Management evaluates investment securities for other-than-temporary (“OTTI”) declines in fair value on a quarterly basis. Once a decline in value is determined to be other-than-temporary, the value of a debt security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses. Also, for equity securities that are considered other-than-temporarily impaired, the excess of the security's carrying value over its fair value at the evaluation date is accounted for as a loss in the results of operations. The OTTI analysis requires management to consider various factors, which include, but are not limited to: (1) the length of time and the extent to which fair value has been less than the amortized cost basis, (2) the financial condition of the issuer or issuers, (3) actual collateral attributes, (4) the payment structure of the debt security and the likelihood of the issuer being able to make payments, (5) any rating changes by a rating agency, (6) adverse conditions specifically related to the security, industry, or a geographic area, and (7) management's intent to sell the debt security or whether it is more likely than not that the Corporation would be required to sell the debt security before a forecasted recovery occurs.

At December 31, 2011, management performed its quarterly analysis of all debt securities in an unrealized loss position. Based on the analyses performed, management concluded that no individual debt security was other-than-temporarily impaired as of such date. At December 31, 2011, the Corporation did not have the intent to sell debt securities in an unrealized loss position and it is not more likely than not that the Corporation will have to sell the investment securities prior to recovery of their amortized cost basis. Also, management evaluated the Corporation's portfolio of equity securities at December 31, 2011. During the year ended December 31, 2011, the Corporation recorded $340 thousand in losses on certain equity securities considered other-than-temporary impairment (2010 - $264 thousand). Management has the intent and ability to hold the investments in equity securities that are at a loss position at December 31, 2011, for a reasonable period of time for a forecasted recovery of fair value up to (or beyond) the cost of these investments.

The unrealized losses associated with “Collateralized mortgage obligations – private label” (“private-label CMO”) are primarily related to securities backed by residential mortgages. In addition to verifying the credit ratings for the private-label CMOs, management analyzed the underlying mortgage loan collateral for these bonds. Various statistics or metrics were reviewed for each private-label CMO, including among others, the weighted average loan-to-value, FICO score, and delinquency and foreclosure rates of the underlying assets in the securities. At December 31, 2011, there were no “sub-prime” securities in the Corporation's private-label CMOs portfolios. For private-label CMOs with unrealized losses at December 31, 2011, credit impairment was assessed using a cash flow model that estimates the cash flows on the underlying mortgages, using the security-specific collateral and transaction structure. The model estimates cash flows from the underlying mortgage loans and distributes those cash flows to various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in that structure. The cash flow model incorporates actual cash flows through the current period and then projects the expected cash flows using a number of assumptions, including default rates, loss severity and prepayment rates. Management's assessment also considered tests using more stressful parameters. Based on the assessments, management concluded that the tranches of the private-label CMOs held by the Corporation were not other-than-temporarily impaired at December 31, 2011, thus management expects to recover the amortized cost basis of the securities.

The following table states the name of issuers, and the aggregate amortized cost and fair value of the securities of such issuer (includes available-for-sale and held-to-maturity securities), in which the aggregate amortized cost of such securities exceeds 10% of stockholders' equity. This information excludes securities backed by the full faith and credit of the U.S. Government. Investments in obligations issued by a state of the U.S. and its political subdivisions and agencies, which are payable and secured by the same source of revenue or taxing authority, other than the U.S. Government, are considered securities of a single issuer.

		2011				2010

(In thousands)	Amortized cost		Fair value		Amortized cost		Fair value
FNMA	$	1,049,315	$	1,089,069	$	757,812	$	789,838
FHLB		553,940		578,617		1,003,395		1,056,549
Freddie Mac		984,270		1,010,669		637,644		654,495

Held-to-maturity Securities

Investment securities

Note 9 – Investment securities held-to-maturity

The following tables present the amortized cost, gross unrealized gains and losses, approximate fair value, weighted average yield and contractual maturities of investment securities held-to-maturity at December 31, 2011 and 2010 (2009 – only amortized cost is presented).

		2011
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average
(In thousands)		cost		gains		losses		value		yield
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year	$	7,275	$	6	$	-	$	7,281	2.24	%
	After 1 to 5 years		11,174		430		-		11,604	5.80
	After 5 to 10 years		18,512		266		90		18,688	5.99
	After 10 years		62,012		40		855		61,197	4.11
Total obligations of Puerto Rico, States and political
	subdivisions		98,973		742		945		98,770	4.51
Collateralized mortgage obligations - private label
	After 10 years		160		-		9		151	5.45
Total collateralized mortgage obligations - private label			160		-		9		151	5.45
Other
	After 1 to 5 years		26,250		83		-		26,333	3.41
Total other			26,250		83		-		26,333	3.41
Total investment securities held-to-maturity		$	125,383	$	825	$	954	$	125,254	4.28	%

		2010										2009
				Gross		Gross				Weighted
		Amortized		unrealized		unrealized		Fair		average		Amortized
(In thousands)		cost		gains		losses		value		yield		cost
U.S. Treasury securities
	Within 1 year	$	25,873	$	-	$	1	$	25,872	0.11	%	$	25,777
Total U.S. Treasury securities			25,873		-		1		25,872	0.11			25,777
Obligations of Puerto Rico, States and political subdivisions
	Within 1 year		2,150		6		-		2,156	5.33			7,015
	After 1 to 5 years		15,529		333		-		15,862	4.10			109,415
	After 5 to 10 years		17,594		115		268		17,441	5.96			17,112
	After 10 years		56,702		-		1,649		55,053	4.25			48,600
Total obligations of Puerto Rico, States and political
	subdivisions		91,975		454		1,917		90,512	4.58			182,142
Collateralized mortgage obligations - private label
	After 10 years		176		-		10		166	5.45			220
Total collateralized mortgage obligations - private label			176		-		10		166	5.45			220
Other
	Within 1 year		4,080		-		-		4,080	1.15			3,573
	After 1 to 5 years		250		-		7		243	1.20			1,250
Total other			4,330		-		7		4,323	1.15			4,823
Total investment securities held-to-maturity		$	122,354	$	454	$	1,935	$	120,873	3.51	%	$	212,962

Securities not due on a single contractual maturity date, such as collateralized mortgage obligations, are classified in the period of final contractual maturity. The expected maturities of collateralized mortgage obligations and certain other securities may differ from their contractual maturities because they may be subject to prepayments or may be called by the issuer.

The following tables present the aggregate amortized cost and fair value of investments securities held-to-maturity at December 31, 2011, by contractual maturity.

(In thousands)		Amortized cost		Fair value
Within 1 year	$	7,275	$	7,281
After 1 to 5 years		37,424		37,937
After 5 to 10 years		18,512		18,688
After 10 years		62,172		61,348
Total investment securities held-to-maturity	$	125,383	$	125,254

The following tables present the Corporation's fair value and gross unrealized losses of investment securities held-to-maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2011 and 2010:

		At December 31, 2011

		Less than 12 months				12 months or more				Total
				Gross				Gross				Gross
		Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)		value		losses		value		losses		value		losses
Obligations of Puerto Rico, States and political subdivisions		$	10,323	$	92	$	31,062	$	853	$	41,385	$	945
Collateralized mortgage obligations - private label			-		-		151		9		151		9
Total investment securities held-to-maturity in an unrealized
	loss position	$	10,323	$	92	$	31,213	$	862	$	41,536	$	954

		At December 31, 2010

		Less than 12 months				12 months or more				Total
				Gross				Gross				Gross
		Fair		unrealized		Fair		unrealized		Fair		unrealized
(In thousands)		value		losses		value		losses		value		losses

U.S. Treasury securities		$	25,872	$	1	$	-	$	-	$	25,872	$	1
Obligations of Puerto Rico, States and political subdivisions			51,995		1,915		773		2		52,768		1,917
Collateralized mortgage obligations - private label			-		-		166		10		166		10
Other			243		7		-		-		243		7
Total investment securities held-to-maturity in an unrealized
	loss position	$	78,110	$	1,923	$	939	$	12	$	79,049	$	1,935

As indicated in Note 8 to these consolidated financial statements, management evaluates investment securities for OTTI declines in fair value on a quarterly basis.

The “Obligations of Puerto Rico, States and political subdivisions” classified as held-to-maturity at December 31, 2011 are primarily associated with securities issued by municipalities of Puerto Rico and are generally not rated by a credit rating agency. The Corporation performs periodic credit quality reviews on these issuers.