Fair value of financial instruments

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures

Fair Value of Financial Instruments

Note 24 – 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, 2021 and December 31, 2020, 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, 2021
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	538,973	$	538,973	$	-	$	-	$	538,973
Money market investments			17,526,238		17,519,832		6,406		-		17,526,238
Trading account debt securities, excluding derivatives[1]			36,064		10,780		24,712		572		36,064
Debt securities available-for-sale[1]			24,391,226		799,972		23,590,371		883		24,391,226
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	64,842	$	-	$	-	$	78,183	$	78,183
	Collateralized mortgage obligation-federal agency		30		-		-		31		31
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
Total debt securities held-to-maturity		$	76,433	$	-	$	11,561	$	78,214	$	89,775
Equity securities:
	FHLB stock	$	56,685	$	-	$	56,685	$	-	$	56,685
	FRB stock		95,119		-		95,119		-		95,119
	Other investments		33,127		-		30,212		4,313		34,525
Total equity securities		$	184,931	$	-	$	182,016	$	4,313	$	186,329
Loans held-for-sale		$	91,313	$	-	$	-	$	92,903	$	92,903
Loans held-in-portfolio			28,136,797		-		-		27,091,726		27,091,726
Mortgage servicing rights			116,567		-		-		116,567		116,567
Derivatives			23,827		-		23,827		-		23,827
		September 30, 2021
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	59,081,441	$	-	$	59,081,441	$	-	$	59,081,441
	Time deposits		6,932,120		-		6,881,141		-		6,881,141
Total deposits		$	66,013,561	$	-	$	65,962,582	$	-	$	65,962,582
Assets sold under agreements to repurchase		$	86,470	$	-	$	86,455	$	-	$	86,455
Notes payable:
	FHLB advances	$	494,469	$	-	$	502,792	$	-	$	502,792
	Unsecured senior debt securities		297,525		-		322,938		-		322,938
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,949		-		411,186		-		411,186
Total notes payable		$	1,176,943	$	-	$	1,236,916	$	-	$	1,236,916
Derivatives		$	20,879	$	-	$	20,879	$	-	$	20,879
[1]	Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

		December 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Assets:
Cash and due from banks		$	491,065	$	491,065	$	-	$	-	$	491,065
Money market investments			11,640,880		11,634,851		6,029		-		11,640,880
Trading account debt securities, excluding derivatives[1]			36,674		11,506		24,509		659		36,674
Debt securities available-for-sale[1]			21,561,152		3,499,781		18,060,357		1,014		21,561,152
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	70,768	$	-	$	-	$	83,298	$	83,298
	Collateralized mortgage obligation-federal agency		31		-		-		32		32
	Securities in wholly owned statutory business trusts		11,561		-		11,561		-		11,561
Total debt securities held-to-maturity		$	82,360	$	-	$	11,561	$	83,330	$	94,891
Equity securities:
	FHLB stock	$	49,799	$	-	$	49,799	$	-	$	49,799
	FRB stock		93,045		-		93,045		-		93,045
	Other investments		30,893		-		29,590		1,495		31,085
Total equity securities		$	173,737	$	-	$	172,434	$	1,495	$	173,929
Loans held-for-sale		$	99,455	$	-	$	-	$	102,189	$	102,189
Loans held-in-portfolio			28,488,946		-		-		27,098,297		27,098,297
Mortgage servicing rights			118,395		-		-		118,395		118,395
Derivatives			20,785		-		20,785		-		20,785
		December 31, 2020
		Carrying
(In thousands)		amount		Level 1		Level 2		Level 3		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	49,558,492	$	-	$	49,558,492	$	-	$	49,558,492
	Time deposits		7,307,848		-		7,319,963		-		7,319,963
Total deposits		$	56,866,340	$	-	$	56,878,455	$	-	$	56,878,455
Assets sold under agreements to repurchase		$	121,303	$	-	$	121,257	$	-	$	121,257
Notes payable:
	FHLB advances	$	542,469	$	-	$	561,977	$	-	$	561,977
	Unsecured senior debt securities		296,574		-		321,078		-		321,078
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		384,929		-		395,078		-		395,078
	FRB advances		1,009		-		1,009		-		1,009
Total notes payable		$	1,224,981	$	-	$	1,279,142	$	-	$	1,279,142
Derivatives		$	18,925	$	-	$	18,925	$	-	$	18,925
[1]	Refer to Note 23 to the Consolidated Financial Statements for the fair value by class of financial asset and its hierarchy level.

The notional amount of commitments to extend credit at September 30, 2021 and December 31, 2020 is $9.3 billion, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2021 and December 31, 2020 is $ 28 million and $ 24 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.