Related party transactions

9 Months Ended

Sep. 30, 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 September 30, 2021, the Corporation held 11,654,803 shares of EVERTEC, representing an ownership stake of 16.19%. 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 $1.7 million in dividends distributions during the nine months ended September 30, 2021 from its investments in EVERTEC (September 30, 2020 - $1.7 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)		September 30, 2021		December 31, 2020
Equity investment in EVERTEC	$	104,850	$	86,158

The Corporation had the following financial condition balances outstanding with EVERTEC at September 30, 2021 and December 31, 2020. Items that represent liabilities to the Corporation are presented with parenthesis.

(In thousands)	September 30, 2021		December 31, 2020
Accounts receivable (Other assets)	$	7,641	$	5,678
Deposits		(144,130)		(125,361)
Accounts payable (Other liabilities)		(2,738)		(2,395)
Net total	$	(139,227)	$	(122,078)

The Corporation’s proportionate share of income or loss 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 (loss) and changes in stockholders’ equity for the quarters and nine months ended September 30, 2021 and 2020.

		Quarter ended		Nine months ended
(In thousands)		September 30, 2021		September 30, 2021
Share of income from the investment in EVERTEC	$	5,709	$	19,426
Share of other changes in EVERTEC's stockholders' equity		610		1,009
Share of EVERTEC's changes in equity recognized in income	$	6,319	$	20,435

		Quarter ended		Nine months ended
(In thousands)		September 30, 2020		September 30, 2020
Share of income from the investment in EVERTEC	$	5,586	$	11,696
Share of other changes in EVERTEC's stockholders' equity		1,135		1,804
Share of EVERTEC's changes in equity recognized in income	$	6,721	$	13,500

The following tables present the 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, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis.

		Quarter ended		Nine months ended
(In thousands)	September 30, 2021			September 30, 2021			Category
Interest expense on deposits		$	(103)		$	(267)	Interest expense
ATH and credit cards interchange income from services to EVERTEC			6,849			20,278	Other service fees
Rental income charged to EVERTEC			1,973			4,915	Net occupancy
Processing fees on services provided by EVERTEC			(62,421)			(183,302)	Professional fees
Other services provided to EVERTEC			214			554	Other operating expenses
Total		$	(53,488)		$	(157,822)

	Quarter ended		Nine months ended
(In thousands)	September 30, 2020		September 30, 2020			Category
Interest expense on deposits	$	(71)		$	(228)	Interest expense
ATH and credit cards interchange income from services to EVERTEC		6,153			16,172	Other service fees
Rental income charged to EVERTEC		1,758			5,293	Net occupancy
Processing fees on services provided by EVERTEC		(57,372)			(164,373)	Professional fees
Other services provided to EVERTEC		253			794	Other operating expenses
Total	$	(49,279)		$	(142,342)

Centro Financiero BHD León

At September 30, 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 nine months ended September 30, 2021, the Corporation recorded $20.4 million in earnings from its investment in BHD León (September 30, 2020 - $21.4 million), which had a carrying amount of $172.1 million at September 30, 2021 (December 31, 2020 - $147.2 million). The Corporation received $4.3 million in dividends distributions during the nine months ended September 30, 2021 from its investment in BHD León (September 30, 2020 - $13.2 million).

Investment Companies

The Corporation, through its subsidiary Popular Asset Management LLC (“PAM”), provides advisory services to several investment companies registered under the Investment Company Act of 1940 in exchange for a fee. The Corporation, through its subsidiary BPPR, 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 nine months ended September 30, 2021 administrative fees charged to these investment companies amounted to $3.4 million (September 30, 2020 - $4.8 million) and waived fees amounted to $1.3 million (September 30, 2020 - $2.1 million), for a net fee of $2.1 million (September 30, 2020 - $2.7 million).

The Corporation, through its subsidiary BPPR, has also entered into certain uncommitted credit facilities with those investment companies. The available lines of credit facilities amounted to $275 million at December 31, 2020, with no balance outstanding, and at September 30, 2021 these were in the process of renewal after they had reached their maturity date. The aggregate sum of all outstanding balances under all credit facilities that could be made available by BPPR, from time to time, to those investment companies for which PAM acts as investment advisor or co-investment advisor, shall never exceed the lesser of $200 million or 10% of BPPR’s capital.