| 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, 2017 and December 31, 2016, 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, but for which the fair value is disclosed from those disclosed in the 2016 Form 10-K. 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, 2017 | | Carrying | | | | | | (In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | | Financial Assets: | | | | | | | | | | | | Cash and due from banks | $ | 517,437 | $ | 517,437 | $ | - | $ | - | $ | 517,437 | | Money market investments | | 5,488,212 | | 5,479,268 | | 8,944 | | - | | 5,488,212 | | Trading account securities, excluding | | | | | | | | | | | | derivatives[1] | | 45,951 | | - | | 44,787 | | 1,164 | | 45,951 | | Investment securities available-for-sale[1] | | 9,061,001 | | - | | 9,059,713 | | 1,288 | | 9,061,001 | | Investment securities held-to-maturity: | | | | | | | | | | | | Obligations of Puerto Rico, States | | | | | | | | | | | | and political subdivisions | $ | 92,369 | $ | - | $ | - | $ | 73,460 | $ | 73,460 | | Collateralized mortgage | | | | | | | | | | | | obligation-federal agency | | 69 | | - | | - | | 73 | | 73 | | Other | | 1,000 | | - | | 742 | | 237 | | 979 | | Total investment securities | | | | | | | | | | | | held-to-maturity | $ | 93,438 | $ | - | $ | 742 | $ | 73,770 | $ | 74,512 | | Other investment securities: | | | | | | | | | | | | FHLB stock | $ | 64,208 | $ | - | $ | 64,208 | $ | - | $ | 64,208 | | FRB stock | | 94,644 | | - | | 94,644 | | - | | 94,644 | | Trust preferred securities | | 13,198 | | - | | 13,198 | | - | | 13,198 | | Other investments | | 1,915 | | - | | - | | 5,091 | | 5,091 | | Total other investment securities | $ | 173,965 | $ | - | $ | 172,050 | $ | 5,091 | $ | 177,141 | | Loans held-for-sale | $ | 68,864 | $ | - | $ | - | $ | 70,499 | $ | 70,499 | | Loans not covered under loss sharing | | | | | | | | | | | | agreement with the FDIC | | 22,559,594 | | - | | - | | 20,896,277 | | 20,896,277 | | Loans covered under loss sharing | | | | | | | | | | | | agreements with the FDIC | | 491,797 | | - | | - | | 483,155 | | 483,155 | | FDIC loss share asset | | 48,470 | | - | | - | | 37,703 | | 37,703 | | Mortgage servicing rights | | 180,157 | | - | | - | | 180,157 | | 180,157 | | Derivatives | | 14,234 | | - | | 14,234 | | - | | 14,234 | | | September 30, 2017 | | Carrying | | | | | | (In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | | Financial Liabilities: | | | | | | | | | | | | Deposits: | | | | | | | | | | | | Demand deposits | $ | 26,636,413 | $ | - | $ | 26,636,413 | $ | - | $ | 26,636,413 | | Time deposits | | 7,612,523 | | - | | 7,504,546 | | - | | 7,504,546 | | Total deposits | $ | 34,248,936 | $ | - | $ | 34,140,959 | $ | - | $ | 34,140,959 | | Assets sold under agreements to | | | | | | | | | | | | repurchase | $ | 374,405 | $ | - | $ | 374,377 | $ | - | $ | 374,377 | | Other short-term borrowings[2] | $ | 240,598 | $ | - | $ | 240,598 | $ | - | $ | 240,598 | | Notes payable: | | | | | | | | | | | | FHLB advances | $ | 629,072 | $ | - | $ | 629,538 | $ | - | $ | 629,538 | | Unsecured senior debt securities | | 446,351 | | - | | 470,043 | | - | | 470,043 | | Junior subordinated deferrable | | | | | | | | | | | | interest debentures (related to | | | | | | | | | | | | trust preferred securities) | | 439,344 | | - | | 411,776 | | - | | 411,776 | | Others | | 17,294 | | - | | - | | 17,294 | | 17,294 | | Total notes payable | $ | 1,532,061 | $ | - | $ | 1,511,357 | $ | 17,294 | $ | 1,528,651 | | Derivatives | $ | 12,841 | $ | - | $ | 12,841 | $ | - | $ | 12,841 | | Contingent consideration | $ | 166,876 | $ | - | $ | - | $ | 166,876 | $ | 166,876 |
[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. | | December 31, 2016 | | Carrying | | | | | | (In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | | Financial Assets: | | | | | | | | | | | | Cash and due from banks | $ | 362,394 | $ | 362,394 | $ | - | $ | - | $ | 362,394 | | Money market investments | | 2,890,217 | | 2,854,777 | | 35,440 | | - | | 2,890,217 | | Trading account securities, excluding | | | | | | | | | | | | derivatives[1] | | 59,796 | | - | | 53,118 | | 6,678 | | 59,796 | | Investment securities available-for-sale[1] | | 8,209,806 | | - | | 8,208,414 | | 1,392 | | 8,209,806 | | Investment securities held-to-maturity: | | | | | | | | | | | | Obligations of Puerto Rico, States | | | | | | | | | | | | and political subdivisions | $ | 96,027 | $ | - | $ | - | $ | 73,540 | $ | 73,540 | | Collateralized mortgage | | | | | | | | | | | | obligation-federal agency | | 74 | | - | | - | | 78 | | 78 | | Other | | 2,000 | | - | | 1,738 | | 220 | | 1,958 | | Total investment securities | | | | | | | | | | | | held-to-maturity | $ | 98,101 | $ | - | $ | 1,738 | $ | 73,838 | $ | 75,576 | | Other investment securities: | | | | | | | | | | | | FHLB stock | $ | 58,033 | $ | - | $ | 58,033 | $ | - | $ | 58,033 | | FRB stock | | 94,672 | | - | | 94,672 | | - | | 94,672 | | Trust preferred securities | | 13,198 | | - | | 13,198 | | - | | 13,198 | | Other investments | | 1,915 | | - | | - | | 4,987 | | 4,987 | | Total other investment securities | $ | 167,818 | $ | - | $ | 165,903 | $ | 4,987 | $ | 170,890 | | Loans held-for-sale | $ | 88,821 | $ | - | $ | 504 | $ | 89,509 | $ | 90,013 | | Loans not covered under loss sharing | | | | | | | | | | | | agreement with the FDIC | | 22,263,446 | | - | | - | | 20,578,904 | | 20,578,904 | | Loans covered under loss sharing | | | | | | | | | | | | agreements with the FDIC | | 542,528 | | - | | - | | 515,808 | | 515,808 | | FDIC loss share asset | | 69,334 | | - | | - | | 63,187 | | 63,187 | | Mortgage servicing rights | | 196,889 | | - | | - | | 196,889 | | 196,889 | | Derivatives | | 14,094 | | - | | 14,094 | | - | | 14,094 | | | December 31, 2016 | | Carrying | | | | | | (In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value | | Financial Liabilities: | | | | | | | | | | | | Deposits: | | | | | | | | | | | | Demand deposits | $ | 22,786,682 | $ | - | $ | 22,786,682 | $ | - | $ | 22,786,682 | | Time deposits | | 7,709,542 | | - | | 7,708,724 | | - | | 7,708,724 | | Total deposits | $ | 30,496,224 | $ | - | $ | 30,495,406 | $ | - | $ | 30,495,406 | | Assets sold under agreements to | | | | | | | | | | | | repurchase | $ | 479,425 | $ | - | $ | 479,439 | $ | - | $ | 479,439 | | Other short-term borrowings[2] | $ | 1,200 | $ | - | $ | 1,200 | $ | - | $ | 1,200 | | Notes payable: | | | | | | | | | | | | FHLB advances | $ | 672,670 | $ | - | $ | 671,872 | $ | - | $ | 671,872 | | Unsecured senior debt | | 444,788 | | - | | 466,263 | | - | | 466,263 | | Junior subordinated deferrable | | | | | | | | | | | | interest debentures (related to | | | | | | | | | | | | trust preferred securities) | | 439,323 | | - | | 399,370 | | - | | 399,370 | | Others | | 18,071 | | - | | - | | 18,071 | | 18,071 | | Total notes payable | $ | 1,574,852 | $ | - | $ | 1,537,505 | $ | 18,071 | $ | 1,555,576 | | Derivatives | $ | 12,842 | $ | - | $ | 12,842 | $ | - | $ | 12,842 | | Contingent consideration | $ | 153,158 | $ | - | $ | - | $ | 153,158 | $ | 153,158 |
[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, 2017 and December 31, 2016 is $ 7.3 billion and $ 7.8 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2017 and December 31, 2016 is $ 34 million and $ 36 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. |