Fair value of financial instruments

9 Months Ended

Sep. 30, 2022

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 September 30, 2022 and December 31, 2021, 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, 2022
		Carrying									Measured
(In thousands)		amount		Level 1		Level 2		Level 3			at NAV	Fair value
Financial Assets:
Cash and due from banks		$	2,017,312	$	2,017,312	$	-	$	-	$	-	$	2,017,312
Money market investments			3,975,048		3,967,849		7,199		-		-		3,975,048
Trading account debt securities, excluding derivatives[1]			30,271		15,711		14,170		390		-		30,271
Debt securities available-for-sale[1]			28,264,148		5,450,397		22,812,040		1,711		-		28,264,148
Debt securities held-to-maturity:
	U.S. Treasury securities	$	1,881,547	$	-	$	1,829,680	$	-	$	-	$	1,829,680
	Obligations of Puerto Rico, States and political subdivisions		58,969		-		-		61,894		-		61,894
	Collateralized mortgage obligation-federal agency		24		-		-		24		-		24
	Securities in wholly owned statutory business trusts		5,960		-		5,960		-		-		5,960
Total debt securities held-to-maturity		$	1,946,500	$	-	$	1,835,640	$	61,918	$	-	$	1,897,558
Equity securities:
	FHLB stock	$	60,844	$	-	$	60,844	$	-	$	-	$	60,844
	FRB stock		94,870		-		94,870		-		-		94,870
	Other investments		30,209		-		26,723		3,969		331		31,023
Total equity securities		$	185,923	$	-	$	182,437	$	3,969	$	331	$	186,737
Loans held-for-sale		$	8,065	$	-	$	-	$	8,065	$	-	$	8,065
Loans held-in-portfolio			30,820,092		-		-		29,308,370		-		29,308,370
Mortgage servicing rights			130,541		-		-		130,541		-		130,541
Derivatives			16,653		-		16,653		-		-		16,653
		September 30, 2022
		Carrying									Measured
(In thousands)		amount		Level 1		Level 2		Level 3			at NAV	Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	57,890,036	$	-	$	57,890,036	$	-	$	-	$	57,890,036
	Time deposits		6,929,291		-		6,553,096		-		-		6,553,096
Total deposits		$	64,819,327	$	-	$	64,443,132	$	-	$	-	$	64,443,132
Assets sold under agreements to repurchase		$	162,450	$	-	$	162,380	$	-	$	-	$	162,380
Other short-term borrowings[2]			250,000		-		250,000		-		-		250,000
Notes payable:
	FHLB advances	$	391,429	$	-	$	362,885	$	-	$	-	$	362,885
	Unsecured senior debt securities		298,793		-		304,080		-		-		304,080
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		198,312		-		181,574		-		-		181,574
Total notes payable		$	888,534	$	-	$	848,539	$	-	$	-	$	848,539
Derivatives		$	14,776	$	-	$	14,776	$	-	$	-	$	14,776
[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, 2021
		Carrying									Measured
(In thousands)		amount		Level 1		Level 2		Level 3			at NAV	Fair value
Financial Assets:
Cash and due from banks		$	428,433	$	428,433	$	-	$	-	$	-	$	428,433
Money market investments			17,536,719		17,530,640		6,079		-		-		17,536,719
Trading account debt securities, excluding derivatives[1]			29,711		6,530		22,703		478		-		29,711
Debt securities available-for-sale[1]			24,968,269		-		24,967,443		826		-		24,968,269
Debt securities held-to-maturity:
	Obligations of Puerto Rico, States and political subdivisions	$	65,380	$	-	$	-	$	77,383	$	-	$	77,383
	Collateralized mortgage obligation-federal agency		25		-		-		25		-		25
	Securities in wholly owned statutory business trusts		5,960		-		5,960		-		-		5,960
Total debt securities held-to-maturity		$	71,365	$	-	$	5,960	$	77,408	$	-	$	83,368
Equity securities:
	FHLB stock	$	59,918	$	-	$	59,918	$	-	$	-	$	59,918
	FRB stock		96,217		-		96,217		-		-		96,217
	Other investments		33,842		-		32,429		3,704		77		36,210
Total equity securities		$	189,977	$	-	$	188,564	$	3,704	$	77	$	192,345
Loans held-for-sale		$	59,168	$	-	$	-	$	59,885	$	-	$	59,885
Loans held-in-portfolio			28,545,191		-		-		27,489,583		-		27,489,583
Mortgage servicing rights			121,570		-		-		121,570		-		121,570
Derivatives			26,093		-		26,093		-		-		26,093
		December 31, 2021
		Carrying									Measured
(In thousands)		amount		Level 1		Level 2		Level 3			at NAV		Fair value
Financial Liabilities:
Deposits:
	Demand deposits	$	60,292,939	$	-	$	60,292,939	$	-	$	-	$	60,292,939
	Time deposits		6,712,149		-		6,647,301		-		-		6,647,301
Total deposits		$	67,005,088	$	-	$	66,940,240	$	-	$	-	$	66,940,240
Assets sold under agreements to repurchase		$	91,603	$	-	$	91,602	$	-	$	-	$	91,602
Other short-term borrowings[2]			75,000		-		75,000		-		-		75,000
Notes payable:
	FHLB advances	$	492,429	$	-	$	496,091	$	-	$	-	$	496,091
	Unsecured senior debt securities		297,842		-		319,296		-		-		319,296
	Junior subordinated deferrable interest debentures (related to trust preferred securities)		198,292		-		201,879		-		-		201,879
Total notes payable		$	988,563	$	-	$	1,017,266	$	-	$	-	$	1,017,266
Derivatives		$	22,878	$	-	$	22,878	$	-	$	-	$	22,878
Contingent consideration		$	9,241	$	-	$	-	$	9,241	$	-	$	9,241
[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 September 30, 2022 and December 31, 2021 is $10.3 billion and $9.5 billion, respectively, and represents the unused portion of credit facilities granted to customers. The notional amount of letters of credit at September 30, 2022 and December 31, 2021 is $24 million and $31 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.