Debt securities held-to-maturity

9 Months Ended

Sep. 30, 2024

Held To Maturity Debt Securities

Schedule of Held-to-maturity Securities [Line Items]

Investments in debt and marketable equity securities

Note 6 –Debt securities held-to-maturity

The following tables present the amortized cost, allowance for credit losses, gross unrealized gains and losses, approximate fair

value, weighted average yield and contractual maturities of debt securities held-to-maturity at September 30, 2024 and December

31, 2023.

At September 30, 2024

Allowance

Carrying

Value 

Gross 

Gross 

Weighted

Amortized 

Book

[1]

for Credit

Net of 

unrealized

unrealized

Fair 

average

(In thousands)

cost

Value

Losses

Allowance

gains 

losses

value

yield

U.S. Treasury securities 

Within 1 year

$

599,518

$

599,518

$

-

$

599,518

$

-

$

4,538

$

594,980

2.70

%

After 1 to 5 years

7,725,178

7,200,448

-

7,200,448

62,265

2,958

7,259,755

1.31

Total U.S. Treasury securities

8,324,696

7,799,966

-

7,799,966

62,265

7,496

7,854,735

1.41

Obligations of Puerto Rico, States and

political subdivisions

Within 1 year

2,440

2,440

7

2,433

4

2

2,435

6.39

After 1 to 5 years

16,474

16,474

84

16,390

62

83

16,369

3.69

After 5 to 10 years

655

655

22

633

22

-

655

5.81

After 10 years

38,276

38,276

5,317

32,959

3,561

2,144

34,376

1.42

Total obligations of Puerto Rico, States and

political subdivisions

57,845

57,845

5,430

52,415

3,649

2,229

53,835

2.33

Collateralized mortgage obligations - federal

agencies

After 10 years

1,523

1,523

-

1,523

-

125

1,398

2.87

Total collateralized mortgage obligations -

federal agencies

1,523

1,523

-

1,523

-

125

1,398

2.87

Securities in wholly owned statutory business

trusts

After 10 years

5,960

5,960

-

5,960

-

-

5,960

6.33

Total securities in wholly owned statutory

business trusts

5,960

5,960

-

5,960

-

-

5,960

6.33

Total debt securities held-to-maturity [2]

$

8,390,024

$

7,865,294

$

5,430

$

7,859,864

$

65,914

$

9,850

$

7,915,928

1.42

%

[1]

Book value includes $

525

 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to

certain securities previously transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio.

[2]

Includes $

7.8

 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The

Corporation had unpledged held-to-maturities securities with a fair value of $

66

.0 million that could be used to increase its borrowing facilities.

At December 31, 2023

Allowance 

Carrying

Value 

Gross 

Gross 

Weighted 

Amortized 

Book

[1]

for Credit

Net of

unrealized

unrealized

Fair 

average 

(In thousands)

cost

Value

Losses

Allowance

gains 

losses

value

yield

U.S. Treasury securities 

Within 1 year

$

597,768

$

597,768

$

-

$

597,768

$

-

$

7,526

$

590,242

2.58

%

After 1 to 5 years

7,971,072

7,335,159

-

7,335,159

637

21,996

7,313,800

1.39

After 5 to 10 years

211,061

188,484

-

188,484

-

187

188,297

1.50

Total U.S. Treasury securities

8,779,901

8,121,411

-

8,121,411

637

29,709

8,092,339

1.47

Obligations of Puerto Rico, States and

political subdivisions

`

Within 1 year

4,820

4,820

9

4,811

3

-

4,814

6.17

After 1 to 5 years

20,171

20,171

147

20,024

96

125

19,995

3.80

After 5 to 10 years

845

845

28

817

28

-

845

5.80

After 10 years

39,572

39,572

5,596

33,976

2,814

2,766

34,024

1.41

Total obligations of Puerto Rico, States and

political subdivisions

65,408

65,408

5,780

59,628

2,941

2,891

59,678

2.55

Collateralized mortgage obligations - federal

agencies

Within 1 year

13

13

-

13

-

-

13

6.44

After 10 years

1,543

1,543

-

1,543

-

148

1,395

2.87

Total collateralized mortgage obligations -

federal agencies

1,556

1,556

-

1,556

-

148

1,408

2.90

Securities in wholly owned statutory business

trusts

After 10 years

5,960

5,960

-

5,960

-

-

5,960

6.33

Total securities in wholly owned statutory

business trusts

5,960

5,960

-

5,960

-

-

5,960

6.33

Total debt securities held-to-maturity [2]

$

8,852,825

$

8,194,335

$

5,780

$

8,188,555

$

3,578

$

32,748

$

8,159,385

1.48

%

[1]

Book value includes $

658

 million of net unrealized loss which remains in Accumulated other comprehensive (loss) income (AOCI) related to certain

securities transferred from available-for-sale securities portfolio to the held-to-maturity securities portfolio as discussed in Note 6 of the 2023 Form

10-K.

[2]

Includes $

8.1

 billion pledged to secure public and trust deposits that the secured parties are not permitted to sell or repledge the collateral. The

Corporation had unpledged held-to-maturities securities with a fair value of $

67.3

 million that could be used to increase its borrowing facilities.

Debt 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.

Credit Quality Indicators

The following describes the credit quality indicators by major security type that the Corporation considers to develop the estimate of

the allowance for credit losses for investment securities held-to-maturity.

As discussed in Note 2 of 2023 Form 10-K, U.S. Treasury securities carry an explicit guarantee from the U.S. Government are

highly rated by major rating agencies and have a long history of no credit losses. Accordingly, the Corporation applies a zero-credit

loss assumption and no allowance for credit losses (“ACL”) for these securities has been established.

At September 30, 2024 and December 31, 2023, the “Obligations of Puerto Rico, States and political subdivisions” classified as

held-to-maturity, includes securities issued by municipalities of Puerto Rico that are generally not rated by a credit rating agency.

This includes $

13

 million of general and special obligation bonds issued by three municipalities of Puerto Rico, that are payable

primarily from certain property taxes imposed by the issuing municipality (December 31, 2023 - $

19

 million). In the case of general

obligations, they also benefit from a pledge of the full faith, credit and unlimited taxing power of the issuing municipality, which is

required by law to levy property taxes in an amount sufficient for the payment of debt service on such general obligation bonds. The

Corporation performs periodic credit quality reviews of these securities and internally assigns standardized credit risk ratings based

on its evaluation. The Corporation considers these ratings in its estimate to develop the allowance for credit losses associated with

these securities. For the definitions of the obligor risk ratings, refer to the Credit Quality section of Note 8 to the Consolidated

Financial Statements.

The following presents the amortized cost basis of securities held by the Corporation issued by municipalities of Puerto Rico

aggregated by the internally assigned standardized credit risk rating:

At September 30, 2024

At December 31, 2023

(In thousands)

Securities issued by Puerto Rico municipalities

Watch

$

1,555

$

2,255

Pass

11,060

16,565

Total

$

12,615

$

18,820

At September 30, 2024, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also includes $

38

 million in

securities issued by the Puerto Rico Housing Finance Authority (“HFA”), a government instrumentality, for which the underlying

source of payment is second mortgage loans in Puerto Rico residential properties (not the government), but for which HFA, provides

a guarantee in the event of default and upon the satisfaction of certain other conditions (December 31, 2023 - $

40

 million). These

securities are not rated by a credit rating agency. 

The Corporation assesses the credit risk associated with these securities by evaluating the refreshed FICO scores of a

representative sample of the underlying borrowers. As of September 30, 2024, the average refreshed FICO score for the sample,

comprised of

70

% of the nominal value of the securities, used for the loss estimate was of

672

 (compared to

67

% and

708

,

respectively, at December 31, 2023). The loss estimates for this portfolio was based on the methodology established under CECL

for similar loan obligations. The Corporation does not consider the government guarantee when estimating the credit losses

associated with this portfolio.

A

deterioration of the Puerto Rico economy or of the fiscal health of the Government of Puerto Rico and/or its instrumentalities

(including if any of the issuing municipalities become subject to a debt restructuring proceeding under PROMESA) could adversely

affect the value of these securities, resulting in losses to the Corporation. 

Refer to Note 20

to the Consolidated Financial Statements

for additional information on the Corporation’s exposure to the Puerto

Rico Government.

At September 30, 2024 and December 31, 2023, the portfolio of “Obligations of Puerto Rico, States and political subdivisions” also

includes $

7

 million in securities issued by the HFA for which the underlying source of payment is U.S. Treasury securities. The

Corporation applies a

zero

-credit loss assumption for these securities, and no ACL has been established for these securities given

that U.S. Treasury securities carry an explicit guarantee from the U.S. Government, are highly rated by major rating agencies, and

have a long history of no credit losses. Refer to Note 2 of 2023 Form 10-K for further details.

Delinquency status

At September 30, 2024 and December 31, 2023, there were

no

 securities held-to-maturity in past due or non-performing status.

Allowance for credit losses on debt securities held-to-maturity

The following table provides the activity in the allowance for credit losses related to debt securities held-to-maturity by security type

for the quarters and nine months ended September 30, 2024 and September 30, 2023:

For the quarters ended September 30, 

2024

2023

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

Beginning balance

$

6,251

$

6,145

Provision for credit losses (benefit)

(821)

(88)

Securities charged-off

-

-

Recoveries

-

-

Ending balance

$

5,430

$

6,057

For the nine months ended September 30, 

2024

2023

(In thousands)

Obligations of Puerto Rico, States and political subdivisions

Allowance for credit losses:

Beginning balance

$

5,780

$

6,911

Provision for credit losses (benefit)

(350)

(854)

Securities charged-off

-

-

Recoveries

-

-

Ending balance

$

5,430

$

6,057

The allowance for credit losses for the Obligations of Puerto Rico, States and political subdivisions includes $

0.1

 million for

securities issued by municipalities of Puerto Rico, and $

5.3

 million for bonds issued by the Puerto Rico HFA, which are secured by

second mortgage loans on Puerto Rico residential properties (compared to $

0.2

 million and $

5.6

 million, respectively, at December

31, 2023).