Fair value of financial instruments

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures

Fair Value of Financial Instruments

Note 26 – Fair value of financial instruments

The fair value of financial instruments is the amount at which an asset or obligation could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. For those financial instruments with no quoted market prices available, fair values have been estimated using present value calculations or other valuation techniques, as well as management’s best judgment with respect to current economic conditions, including discount rates, estimates of future cash flows, and prepayment assumptions. Many of these estimates involve various assumptions and may vary significantly from amounts that could be realized in actual transactions.

The fair values reflected herein have been determined based on the prevailing rate environment at September 30, 2019 and December 31, 2018, as applicable. In different interest rate environments, fair value estimates can differ significantly, especially for certain fixed rate financial instruments. In addition, the fair values presented do not attempt to estimate the value of the Corporation’s fee generating businesses and anticipated future business activities, that is, they do not represent the Corporation’s value as a going concern. There have been no changes in the Corporation’s valuation methodologies and inputs used to estimate the fair values for each class of financial assets and liabilities not measured at fair value.

The following tables present the carrying amount and estimated fair values of financial instruments with their corresponding level in the fair value hierarchy. The aggregate fair value amounts of the financial instruments disclosed do not represent management’s estimate of the underlying value of the Corporation.

		September 30, 2019
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	502,060	$	502,060	$	-	$	-	$	502,060
Money market investments			5,168,585		5,162,672		5,913		-		5,168,585
Trading account debt securities, excluding derivatives[1]			36,303		2,758		32,506		1,039		36,303
Debt securities available-for-sale[1]			16,479,110		4,487,422		11,990,479		1,209		16,479,110
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	85,598	$	-	$	-	$	91,808	$	91,808
	Collateralized mortgage obligation-federal agency		48		-		-		50		50
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
	Other		500		-		499		-		499
Total debt securities held-to-maturity		$	97,707	$	-	$	12,060	$	91,858	$	103,918
Equity securities:
	FHLB stock	$	46,729	$	-	$	46,729	$	-	$	46,729
	FRB stock		92,648		-		92,648		-		92,648
	Other investments		21,081		-		19,778		7,296		27,074
Total equity securities		$	160,458	$	-	$	159,155	$	7,296	$	166,451
Loans held-for-sale		$	56,370	$	-	$	-	$	57,572	$	57,572
Loans held-in-portfolio			26,495,610		-		-		24,603,515		24,603,515
Mortgage servicing rights			150,652		-		-		150,652		150,652
Derivatives			15,234		-		15,234		-		15,234
		September 30, 2019
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	36,370,038	$	-	$	36,370,038	$	-	$	36,370,038
	Time deposits		7,796,157		-		7,648,739		-		7,648,739
Total deposits		$	44,166,195	$	-	$	44,018,777	$	-	$	44,018,777
Assets sold under agreements to repurchase		$	213,097	$	-	$	212,812	$	-	$	212,812
Notes payable:
	FHLB advances	$	486,785	$	-	$	496,552	$	-	$	496,552
	Unsecured senior debt securities		294,990		-		322,014		-		322,014
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,895		-		406,485		-		406,485
Total notes payable		$	1,166,670	$	-	$	1,225,051	$	-	$	1,225,051
Derivatives		$	14,069	$	-	$	14,069	$	-	$	14,069
[1]	Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level

		December 31, 2018
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	394,035	$	394,035	$	-	$	-	$	394,035
Money market investments			4,171,048		4,161,832		9,216		-		4,171,048
Trading account debt securities, excluding derivatives[1]			37,787		6,278		30,370		1,139		37,787
Debt securities available-for-sale[1]			13,300,184		2,719,740		10,579,211		1,233		13,300,184
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	89,459	$	-	$	-	$	90,534	$	90,534
	Collateralized mortgage obligation-federal agency		55		-		-		58		58
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
	Other		500		-		500		-		500
Total debt securities held-to-maturity		$	101,575	$	-	$	12,061	$	90,592	$	102,653
Equity securities:
	FHLB stock	$	51,628	$	-	$	51,628	$	-	$	51,628
	FRB stock		89,358		-		89,358		-		89,358
	Other investments		14,598		-		13,296		5,539		18,835
Total equity securities		$	155,584	$	-	$	154,282	$	5,539	$	159,821
Loans held-for-sale		$	51,422	$	-	$	-	$	52,474	$	52,474
Loans held-in-portfolio			25,938,541		-		-		23,143,027		23,143,027
Mortgage servicing rights			169,777		-		-		169,777		169,777
Derivatives			13,603		-		13,603		-		13,603
		December 31, 2018
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	32,093,274	$	-	$	32,093,274	$	-	$	32,093,274
	Time deposits		7,616,765		-		7,392,698		-		7,392,698
Total deposits		$	39,710,039	$	-	$	39,485,972	$	-	$	39,485,972
Assets sold under agreements to repurchase		$	281,529	$	-	$	281,535	$	-	$	281,535
Other short-term borrowings[2]		$	42	$	-	$	42	$	-	$	42
Notes payable:
	FHLB advances	$	556,776	$	-	$	553,111	$	-	$	553,111
	Unsecured senior debt		294,039		-		302,664		-		302,664
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,875		-		381,079		-		381,079
	Capital lease obligations		20,412		-		-		20,412		20,412
Total notes payable		$	1,256,102	$	-	$	1,236,854	$	20,412	$	1,257,266
Derivatives		$	12,320	$	-	$	12,320	$	-	$	12,320
[1]	Refer to Note 25 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.
[2]	Refer to Note 17 to the Consolidated Financial Statements for the composition of other short-term borrowings.

The notional amount of commitments to extend credit at September 30, 2019 and December 31, 2018 is $ 7.7 billion and $ 7.5 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2019 and December 31, 2018 is $ 84 million and $ 29 million respectively, and represents the contractual amount that is required to be paid in the event of nonperformance. The fair value of commitments to extend credit and letters of credit, which are based on the fees charged to enter into those agreements, are not material to Popular’s financial statements.