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Fair value of financial instruments | 9 Months Ended
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Sep. 30, 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 September 30, 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.
|  | September 30, 2020
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Assets: |  |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 565,202 | $ | 565,202 | $ | - | $ | - | $ | 565,202
Money market investments |  | 11,859,924 |  | 11,853,978 |  | 5,946 |  | - |  | 11,859,924
Trading account debt securities, excluding derivatives[1] |  | 33,053 |  | 4,106 |  | 28,124 |  | 823 |  | 33,053
Debt securities available-for-sale[1] |  | 21,177,839 |  | 3,999,320 |  | 17,177,395 |  | 1,124 |  | 21,177,839
Debt securities held-to-maturity: |  |  |  |  |  |  |  |  |  |
| Obligations of Puerto Rico, States and political subdivisions | $ | 68,646 | $ | - | $ | - | $ | 82,995 | $ | 82,995
| Collateralized mortgage obligation-federal agency |  | 35 |  | - |  | - |  | 37 |  | 37
| Securities in wholly owned statutory business trusts |  | 11,561 |  | - |  | 11,561 |  | - |  | 11,561
| Other |  | 500 |  | - |  | 500 |  | - |  | 500
Total debt securities held-to-maturity | $ | 80,742 | $ | - | $ | 12,061 | $ | 83,032 | $ | 95,093
Equity securities: |  |  |  |  |  |  |  |  |  |
| FHLB stock | $ | 53,252 | $ | - | $ | 53,252 | $ | - | $ | 53,252
| FRB stock |  | 92,721 |  | - |  | 92,721 |  | - |  | 92,721
| Other investments |  | 28,020 |  | - |  | 26,718 |  | 1,679 |  | 28,397
Total equity securities | $ | 173,993 | $ | - | $ | 172,691 | $ | 1,679 | $ | 174,370
Loans held-for-sale | $ | 102,760 | $ | - | $ | - | $ | 104,915 | $ | 104,915
Loans held-in-portfolio |  | 28,466,660 |  | - |  | - |  | 27,023,763 |  | 27,023,763
Mortgage servicing rights |  | 123,552 |  | - |  | - |  | 123,552 |  | 123,552
Derivatives |  | 18,080 |  | - |  | 18,080 |  | - |  | 18,080
|  | September 30, 2020
| Carrying |  |  |  |
(In thousands) | amount | Level 1 | Level 2 | Level 3 | Fair value
Financial Liabilities: |  |  |  |  |  |  |  |  |  |
Deposits: |  |  |  |  |  |  |  |  |  |
| Demand deposits | $ | 48,177,054 | $ | - | $ | 48,177,054 | $ | - | $ | 48,177,054
| Time deposits |  | 7,844,929 |  | - |  | 7,845,290 |  | - |  | 7,845,290
Total deposits | $ | 56,021,983 | $ | - | $ | 56,022,344 | $ | - | $ | 56,022,344
Assets sold under agreements to repurchase | $ | 106,028 | $ | - | $ | 105,699 | $ | - | $ | 105,699
Other short-term borrowings[2] | $ | 100,000 | $ | - | $ | 100,000 | $ | - | $ | 100,000
Notes payable: |  |  |  |  |  |  |  |  |  |
| FHLB advances | $ | 519,208 | $ | - | $ | 540,547 | $ | - | $ | 540,547
| Unsecured senior debt securities |  | 296,257 |  | - |  | 301,082 |  | - |  | 301,082
| Junior subordinated deferrable interest debentures (related to trust preferred securities) |  | 384,922 |  | - |  | 407,262 |  | - |  | 407,262
| FRB advances |  | 1,009 |  | - |  | 1,009 |  | - |  | 1,009
Total notes payable | $ | 1,201,396 | $ | - | $ | 1,249,900 | $ | - | $ | 1,249,900
Derivatives | $ | 15,346 | $ | - | $ | 15,346 | $ | - | $ | 15,346
[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.
The notional amount of commitments to extend credit at September 30, 2020 and December 31, 2019 is $ 9.0 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 September 30, 2020 and December 31, 2019 is $ 63 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.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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