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Related party transactions with affiliated company

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements [Abstract]

Note 21 – Related party transactions with affiliated company / joint venture

On September 30, 2010, the Corporation completed the sale of a 51% majority interest in EVERTEC, Inc. (“EVERTEC”) to an unrelated third-party, including the Corporation's merchant acquiring and processing and technology businesses (the “EVERTEC transaction”), and retained a 49% ownership interest in Carib Holdings, the holding company of EVERTEC. EVERTEC continues to provide various processing and information technology services to the Corporation and its subsidiaries and gives BPPR access to the ATH network owned and operated by EVERTEC. The investment in EVERTEC is accounted for under the equity method and is evaluated for impairment if events or circumstances indicate that a decrease in value of the investment has occurred that is other than temporary. Refer to Note 25 “Related party transactions” to the consolidated financial statements included in the Corporation's 2011 Annual Report for details on this sale to an unrelated third-party. As of September 30, 2012, the Corporation's holds a 48.5% interest in the holding company of EVERTEC.

The Corporation's equity in EVERTEC, including the impact of intra-entity eliminations, is presented in the table which follows and is included as part of “other assets” in the consolidated statements of financial condition. During the nine months ended September 30, 2012, the Corporation received a $131 million cash dividend from its investments in EVERTEC's holding company. The Corporation did not receive any capital distributions from EVERTEC during the year ended December 31, 2011.

(In thousands)		September 30, 2012		December 31, 2011
Equity investment in EVERTEC	$	61,953	$	191,072
Intra-company eliminations (detailed in next table)		15,679		11,944
Equity investment in EVERTEC, considering intra-company eliminations	$	77,632	$	203,016

The Corporation had the following financial condition accounts outstanding with EVERTEC at September 30, 2012 and December 31, 2011. The 51.5% majority interest represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation's statements of financial condition at September 30, 2012 (December 31, 2011 - 51%).

	At September 30, 2012						At December 31, 2011
(In thousands)		100%	Popular's 48.5% interest (eliminations)			51.5% majority interest		100%	Popular's 49% interest (eliminations)			51% majority interest
Loans	$	53,493	$	25,933	$	27,560	$	53,215	$	26,075	$	27,140
Investment securities		35,000		16,968		18,032		35,000		17,150		17,850
Deposits		44,659		21,651		23,008		54,288		26,601		27,687
Accounts receivables (Other assets)		3,321		1,610		1,711		5,132		2,515		2,617
Accounts payable (Other liabilities)		14,813		7,181		7,632		14,684		7,195		7,489
Total	$	32,342	$	15,679	$	16,663	$	24,375	$	11,944	$	12,431

The Corporation's proportionate share of income or loss from EVERTEC is included in other operating income in the consolidated statements of operations since October 1, 2010. The following table presents the Corporation's proportionate share of income (loss) from EVERTEC for the quarter and nine months ended September 30, 2012 and 2011.The unfavorable impact of the elimination in non-interest income presented in the table is principally offset by the elimination of 48.5% of the professional fees (operating expenses) paid by the Corporation to EVERTEC during the quarter and nine months ended September 30, 2012 (September 30, 2011 - 49%).

		Quarter ended		Nine months ended
		September 30,		September 30,
(In thousands)		2012		2012
Share of income from the equity investment in EVERTEC	$	29	$	1,714
Intra-company eliminations considered in other operating income (detailed in next table)		(12,793)		(39,067)
Share of loss from equity investment in EVERTEC, net of eliminations	$	(12,764)	$	(37,353)

		Quarter ended		Nine months ended
		September 30,		September 30,
(In thousands)		2011		2011
Share of (loss) income from the equity investment in EVERTEC	$	(1,426)	$	11,069
Intra-company eliminations considered in other operating income (detailed in next table)		(12,288)		(38,747)
Share of loss from equity investment in EVERTEC, net of eliminations	$	(13,714)	$	(27,678)

The following tables present the impact of transactions and service payments between the Corporation and EVERTEC (as an affiliate) and their impact on the results of operations for the quarters and nine months ended September 30, 2012 and 2011. Items that represent expenses to the Corporation are presented with parenthesis. For consolidation purposes, for the quarters and nine months ended September 30, 2012, the Corporation eliminates 48.5% of the income (expense) between EVERTEC and the Corporation from the corresponding categories in the consolidated statements of operations and the net effect of all items at 48.5% is eliminated against other operating income, which is the category used to record the Corporation's share of income (loss) as part of its equity method investment in EVERTEC (September 30, 2011 - 49%). The 51.5% majority interest in the table that follows represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation's results of operations for the quarters and nine months ended September 30, 2012 (September 30, 2011 - 51%).

	Quarter ended							Nine months ended
		September 30, 2012						September 30, 2012
(In thousands)	100%		Popular's 48.5% interest (eliminations)		51.5% majority interest		100%		Popular's 48.5% interest (eliminations)		51.5% majority interest		Category
Interest income on loan to EVERTEC	$	854	$	414	$	440	$	2,502	$	1,198	$	1,304	Interest income
Interest income on investment securities issued by EVERTEC		963		467		496		2,888		1,384		1,504	Interest income
Interest expense on deposits		(45)		(22)		(23)		(219)		(104)		(115)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		6,240		3,026		3,214		18,513		8,854		9,659	Other service fees
Processing fees on services provided by EVERTEC		(36,173)		(17,540)		(18,633)		(110,687)		(53,048)		(57,639)	Professional fees
Rental income charged to EVERTEC		1,636		794		842		4,991		2,391		2,600	Net occupancy
Transition services provided to EVERTEC		141		68		73		544		258		286	Other operating expenses
Total	$	(26,384)	$	(12,793)	$	(13,591)	$	(81,468)	$	(39,067)	$	(42,401)

	Quarter ended							Nine months ended
		September 30, 2011						September 30, 2011
(In thousands)	100%		Popular's 49% interest (eliminations)		51% majority interest		100%		Popular's 49% interest (eliminations)		51% majority interest		Category
Interest income on loan to EVERTEC	$	850	$	417	$	433	$	2,787	$	1,366	$	1,421	Interest income
Interest income on investment securities issued by EVERTEC		963		472		491		2,888		1,415		1,473	Interest income
Interest expense on deposits		(136)		(67)		(69)		(538)		(264)		(274)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		7,294		3,574		3,720		21,366		10,469		10,897	Other service fees
Processing fees on services provided by EVERTEC		(36,185)		(17,731)		(18,454)		(111,985)		(54,872)		(57,113)	Professional fees
Rental income charged to EVERTEC		1,746		856		890		5,350		2,621		2,729	Net occupancy
Transition services provided to EVERTEC		390		191		199		1,056		518		538	Other operating expenses
Total	$	(25,078)	$	(12,288)	$	(12,790)	$	(79,076)	$	(38,747)	$	(40,329)

EVERTEC has certain performance bonds outstanding, which are guaranteed by the Corporation under a general indemnity agreement between the Corporation and the insurance companies issuing the bonds. EVERTEC's performance bonds guaranteed by the Corporation amounted to approximately $ 7.7 million at September 30, 2012 (December 31, 2011 - $15.0 million). Also, EVERTEC has a letter of credit issued by BPPR, for an amount of $2.9 million at September 30, 2012 and December 31, 2011. As part of the merger agreement, the Corporation also agreed to maintain outstanding this letter of credit for a 5-year period. EVERTEC and the Corporation entered into a Reimbursement Agreement, in which EVERTEC will reimburse the Corporation for any losses incurred by the Corporation in connection with the performance bonds and the letter of credit. Possible losses resulting from these agreements are considered insignificant.

As indicated in Note 20 to the consolidated financial statements, the Corporation holds a 24.9% equity interest in PRLP 2011 Holdings LLC and currently provides certain financing to the joint venture as well as holds certain deposits from the entity.

The following table presents transactions between the Corporation and PRLP 2011 Holdings, LLC and their impact on the Corporation's results of operations for the quarter and nine months ended September 30, 2012.

		Quarter ended September 30, 2012						Nine months ended September 30, 2012
(In thousands)	100%		Popular's 24.9% interest (eliminations)		75.1% majority interest		100%		Popular's 24.9% interest (eliminations)		75.1% majority interest		Category
Interest income on loan to PRLP 2011 Holdings, LLC	$	619	$	154	$	465	$	2,130	$	530	$	1,600	Interest income

The Corporation had the following financial condition accounts outstanding with PRLP 2011 Holdings, LLC at September 30, 2012 and December 31, 2011. The 75.1% majority interest represents the share of transactions with the affiliate that is not eliminated in the consolidation of the Corporation's statement of financial condition.

	At September 30, 2012						At December 31, 2011
(In thousands)		100%	Popular's 24.9% interest (eliminations)			75.1% majority interest		100%	Popular's 24.9% interest (eliminations)			75.1% majority interest
Loans	$	67,746	$	16,869	$	50,877	$	86,167	$	21,456	$	64,711
Deposits (non-interest bearing)		6,366		1,585		4,781		64		16		48
Accrued interest receivable		185		46		139		-		-		-
Total	$	61,565	$	15,330	$	46,235	$	86,103	$	21,440	$	64,663

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

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+ Details