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Related party transactions

9 Months Ended

Sep. 30, 2022

Related Party Transactions

Related Party Transactions

Note 23 – 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

Until August 15, 2022, the Corporation had an investment in Evertec, which provides various processing and information technology services to the Corporation and its subsidiaries and gave BPPR access to the ATH network owned and operated by Evertec. As of December 31,2021, the Corporation held 11,654,803 shares of Evertec, representing an ownership stake of 16.19%. This investment was accounted for under the equity method. The Corporation recorded $1.5 million in dividends from its investment in Evertec during the nine months ended September 30, 2022 (September 30, 2021 - $1.7 million).

As discussed in Note 4, Business combination, on July 1, 2022, BPPR completed its previously announced acquisition of certain assets from Evertec Group to service certain BPPR channels. In connection with the Business Acquisition Transaction, BPPR also entered into amended and restated service agreements with Evertec Group pursuant to which Evertec Group will continue to provide various information technology and transaction processing services to Popular, BPPR and their respective subsidiaries. As part of the transaction, BPPR and Evertec entered into a revenue sharing structure for BPPR in connection with its merchant acquiring relationship with Evertec. As consideration for the Business Acquisition Transaction, BPPR delivered to Evertec Group 4,589,169 shares of Evertec common stock valued at closing at $169.2 million (based on Evertec’s stock price on June 30, 2022 of $36.88). As a result of the exchange of shares, the Corporation recognized a pre-tax gain of $119.9 million.

Additionally, on August 15, 2022, the Corporation completed the sale of its remaining 7,065,634 shares of common stock of Evertec, Inc. (the “Evertec Stock Sale”, and collectively with the Business Acquisition Transaction, the “Evertec Transactions”). Following the Evertec Stock Sale, Popular no longer owns any Evertec common stock. As a result, the Corporation discontinued accounting for its proportionate share of Evertec’s income (loss) and changes in stockholder’s equity under the equity method of accounting in the third quarter of 2022. The Corporation recognized a pre-tax gain on the Evertec Stock Sale of $137.8 million, including related accounting adjustments.

The following table presents the Corporation’s proportionate share of Evertec’s income (loss) and changes in stockholders’ equity through the period ended September 30, 2022, including the effects of the gains recognized related to the Evertec Transactions.

		Quarter ended			Nine months ended
(In thousands)		September 30.2022			September 30, 2022
Share of Evertec income and Gain from the Evertec Transactions and related accounting adjustments [1]	$	257,712		$	269,539
Share of other changes in Evertec's stockholders' equity		-			3,168
Share of Evertec's changes in equity recognized in income and Gain from the Evertec Transactions and related accounting adjustments	$	257,712		$	272,707
[1] The Gain from the Evertec Transactions and related accounting adjustments are reflected within Other operating income in the accompanying consolidated financial statements. As discussed in Note 4, the Corporation recognized an additional $17.3 million as an operating expense in connection with the Business Acquisition Transaction.

		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

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. Items that represent expenses to the Corporation are presented with parenthesis.

				Nine months ended
(In thousands)				September 30, 2022 [1]			Category
Interest expense on deposits					$	(267)	Interest expense
ATH and credit cards interchange income from services to Evertec						13,955	Other service fees
Rental income charged to Evertec						3,258	Net occupancy
Processing fees on services provided by Evertec						(128,681)	Professional fees
Other services provided to Evertec						420	Other operating expenses
Total					$	(111,315)
[1] Includes activity through June 30, 2022.

		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)

The Corporation continues to obtain programming, processing, and other technology services from Evertec under the amended and restated Master Service Agreement (“MSA”). During the third quarter of 2022, the Corporation incurred expenses of $52 million in connection with these services. In addition, the Corporation received $3.3 million from Evertec, related to its merchant acquiring relationship. Under the terms of the MSA, Evertec will be entitled to receive monthly payments from the Corporation to the extent that Evertec’s revenues, covered under the MSA, fall below certain agreed annualized minimum amounts.

Centro Financiero BHD León

At September 30, 2022, 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, 2022, the Corporation recorded $23.7 million in earnings from its investment in BHD León (September 30, 2021 - $20.4 million), which had

a carrying amount of $192.2 million at September 30, 2022 (December 31, 2021 - $180.3 million). The Corporation received $ 16.0 million in dividends distributions during the nine months ended September 30, 2022 from its investment in BHD León (September 30, 2021 - $4.3 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, 2022 administrative fees charged to these investment companies amounted to $1.9 million (September 30, 2021 - $3.4 million) and waived fees amounted to $0.7 million (September 30, 2021 - $1.3 million), for a net fee of $1.2 million (September 30, 2021 - $2.1 million).