Fair value of financial instruments

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures

Fair Value of Financial Instruments

Note 25 – 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 March 31, 2020 and December 31, 2019, 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.

		March 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	445,551	$	445,551	$	-	$	-	$	445,551
Money market investments			5,941,716		5,935,945		5,771		-		5,941,716
Trading account debt securities, excluding derivatives[1]			42,545		1		41,649		895		42,545
Debt securities available-for-sale[1]			15,813,301		2,099,856		13,712,268		1,177		15,813,301
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	69,771	$	-	$	-	$	68,296	$	68,296
	Collateralized mortgage obligation-federal agency		41		-		-		43		43
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
	Other		500		-		500		-		500
Total debt securities held-to-maturity		$	81,873	$	-	$	12,061	$	68,339	$	80,400
Equity securities:
	FHLB stock	$	46,316	$	-	$	46,316	$	-	$	46,316
	FRB stock		93,838		-		93,838		-		93,838
	Other investments		22,904		-		21,601		6,704		28,305
Total equity securities		$	163,058	$	-	$	161,755	$	6,704	$	168,459
Loans held-for-sale		$	87,855	$	-	$	-	$	91,182	$	91,182
Loans held-in-portfolio			26,742,556		-		-		24,977,460		24,977,460
Mortgage servicing rights			147,311		-		-		147,311		147,311
Derivatives			9,534		-		9,534		-		9,534
		March 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	36,269,352	$	-	$	36,269,352	$	-	$	36,269,352
	Time deposits		8,527,824		-		8,398,572		-		8,398,572
Total deposits		$	44,797,176	$	-	$	44,667,924	$	-	$	44,667,924
Assets sold under agreements to repurchase		$	178,766	$	-	$	178,104	$	-	$	178,104
Other short-term borrowings[2]		$	100,000	$	-	$	100,000	$	-	$	100,000
Notes payable:
	FHLB advances	$	377,598	$	-	$	393,674	$	-	$	393,674
	Unsecured senior debt securities		295,624		-		309,228		-		309,228
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,909		-		371,086		-		371,086
Total notes payable		$	1,058,131	$	-	$	1,073,988	$	-	$	1,073,988
Derivatives		$	12,037	$	-	$	12,037	$	-	$	12,037
[1]	Refer to Note 24 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level
[2]	Refer to Note 16 to the Consolidated Financial Statements for the composition of other short-term borrowings.

		December 31, 2019
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	388,311	$	388,311	$	-	$	-	$	388,311
Money market investments			3,262,286		3,256,274		6,012		-		3,262,286
Trading account debt securities, excluding derivatives[1]			40,321		7,081		32,270		970		40,321
Debt securities available-for-sale[1]			17,648,473		3,841,715		13,805,576		1,182		17,648,473
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	85,556	$	-	$	-	$	93,002	$	93,002
	Collateralized mortgage obligation-federal agency		45		-		-		47		47
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
	Other		500		-		500		-		500
Total debt securities held-to-maturity		$	97,662	$	-	$	12,061	$	93,049	$	105,110
Equity securities:
	FHLB stock	$	43,787	$	-	$	43,787	$	-	$	43,787
	FRB stock		93,470		-		93,470		-		93,470
	Other investments		22,630		-		21,328		7,367		28,695
Total equity securities		$	159,887	$	-	$	158,585	$	7,367	$	165,952
Loans held-for-sale		$	59,203	$	-	$	-	$	60,030	$	60,030
Loans held-in-portfolio			26,929,165		-		-		25,051,400		25,051,400
Mortgage servicing rights			150,906		-		-		150,906		150,906
Derivatives			17,966		-		17,966		-		17,966
		December 31, 2019
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	36,083,809	$	-	$	36,083,809	$	-	$	36,083,809
	Time deposits		7,674,797		-		7,598,732		-		7,598,732
Total deposits		$	43,758,606	$	-	$	43,682,541	$	-	$	43,682,541
Assets sold under agreements to repurchase		$	193,378	$	-	$	193,271	$	-	$	193,271
Notes payable:
	FHLB advances	$	421,399	$	-	$	429,718	$	-	$	429,718
	Unsecured senior debt		295,307		-		323,415		-		323,415
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,902		-		395,216		-		395,216
Total notes payable		$	1,101,608	$	-	$	1,148,349	$	-	$	1,148,349
Derivatives		$	16,619	$	-	$	16,619	$	-	$	16,619
[1]	Refer to Note 24 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.
[2]	Refer to Note 16 to the Consolidated Financial Statements for the composition of other short-term borrowings.

The notional amount of commitments to extend credit at March 31, 2020 and December 31, 2019 is $ 8.2 billion and $ 8.4 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at March 31, 2020 and December 31, 2019 is $ 73 million and $ 78 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.