Related party transactions

3 Months Ended

Mar. 31, 2021

Related Party Transactions

Related Party Transactions

Note 22 – Related party transactions

The Corporation considers its equity method investees as related parties. The following provides information on transactions with equity method investees considered related parties.

EVERTEC

The Corporation has an investment in EVERTEC, Inc. (“EVERTEC”), which provides 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. As of March 31, 2021, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.15%. The Corporation continues to have significant influence over EVERTEC. Accordingly, 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.

The Corporation recorded $0.6 million in dividends distributions during the quarter ended March 31, 2021 from its investments in EVERTEC (March 31, 2020 - $0.6 million). The Corporation’s equity in EVERTEC is presented in the table which follows and is included as part of “other assets” in the Consolidated Statements of Financial Condition.

(In thousands)		March 31, 2021		December 31, 2020
Equity investment in EVERTEC	$	92,004	$	86,158

The Corporation had the following financial condition balances outstanding with EVERTEC at March 31, 2021 and December 31, 2020. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)	March 31, 2021		December 31, 2020
Accounts receivable (Other assets)	$	3,597	$	5,678
Deposits		(75,420)		(125,361)
Accounts payable (Other liabilities)		(1,835)		(2,395)
Net total	$	(73,658)	$	(122,078)

The Corporation’s proportionate share of income from EVERTEC is included in other operating income in the consolidated statements of operations. The following table presents the Corporation’s proportionate share of EVERTEC’s income and changes in stockholders’ equity for the quarters ended March 31, 2021 and 2020.

		Quarters ended March 31,
(In thousands)		2021		2020
Share of income from investment in EVERTEC	$	5,734	$	3,602
Share of other changes in EVERTEC's stockholders' equity		178		785
Share of EVERTEC's changes in equity recognized in income	$	5,912	$	4,387

The following table presents 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 ended March 31, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis.

	Quarters ended March 31,
(In thousands)	2021		2020		Category
Interest expense on deposits	$	(89)	$	(67)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		6,454		5,489	Other service fees
Rental income charged to EVERTEC		1,547		1,767	Net occupancy
Processing fees on services provided by EVERTEC		(60,141)		(55,596)	Professional fees
Other services provided to EVERTEC		121		261	Other operating expenses
Total	$	(52,108)	$	(48,146)

Centro Financiero BHD León

At March 31, 2021, the Corporation had a 15.84% equity interest in Centro Financiero BHD León, S.A. (“BHD León”), one of the largest banking and financial services groups in the Dominican Republic. During the quarter ended March 31, 2021, the Corporation recorded $6.4 million in earnings from its investment in BHD León (March 31, 2020 - $6.8 million), which had a carrying amount of $160.1 million at March 31, 2021 (December 31, 2020 - $153.1 million). There were no dividends distributions received by the Corporation from its investment in BHD León, during the quarter ended March 31, 2021 and 2020.

Investment Companies

The Corporation provides advisory services to several investment companies registered under the Puerto Rico Investment Companies Act in exchange for a fee. The Corporation also provides administrative, custody and transfer agency services to these investment companies. These fees are calculated at an annual rate of the average net assets of the investment company, as defined in each agreement. Due to its advisory role, the Corporation considers these investment companies as related parties.

For the quarter ended March 31, 2021 administrative fees charged to these investment companies amounted to $1.2 million (March 31, 2020 - $1.6 million) and waived fees amounted to $0.5 million (March 31, 2020 - $0.5 million), for a net fee of $0.7 million (March 31, 2020 - $1.1 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. As of March 31, 2021, the available lines of credit facilities amounted to $255 million (December 31, 2020 - $275 million). The aggregate sum of all outstanding balances under all credit facilities that may be made available by BPPR, from time to time, to those investment companies for which BPPR acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital. At March 31, 2021 there was no outstanding balance for these credit facilities.