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Related party transactions | 12 Months Ended
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Dec. 31, 2022
Related Party Transactions |
Related Party Transactions | Note 27 – Related party transactions The Corporation grants loans to its directors, executive officers, including certain related individuals or organizations, and affiliates in the ordinary course of business. The activity and balance of these loans were as follows: (In thousands) Balance at December 31, 2020 $ 124,891 New loans 3,182 Payments (28,208) Other changes, including existing loans to new related parties 2,714 Balance at December 31, 2021 $ 102,579 New loans 11,090 Payments (15,402) Other changes, including existing loans to new related parties 27,070 Balance at December 31, 2022 $ 125,337 New loans and payments include disbursements and collections from existing lines of credit. The Corporation has had loan transactions with the Corporation’s directors, executive officers, including certain related individuals or organizations, and affiliates, and proposes to continue such transactions in the ordinary course of its business, on substantially the same terms, including interest rates and collateral, as those prevailing for comparable loan transactions with third parties. Except as discussed below, the extensions of credit have not involved and do not currently involve more than normal risks of collection or present other unfavorable features. In 2010, as part of the Westernbank FDIC assisted transaction, BPPR acquired five commercial loans made to entities that were wholly owned by one brother-in-law of a director of the Corporation. The loans were secured by real estate and personally guaranteed by the director’s brother-in-law. The loans were originated by Westernbank between 2001 and 2005 and had an aggregate outstanding principal balance of approximately $ 33.5 million when they were acquired by BPPR in 2010. Between 2011 and 2014, the loans were restructured to consist of (i) five notes with an aggregate outstanding principal balance of $ 19.8 million with a 6 % annual interest rate (“Notes A”) and (ii) five notes with an aggregate outstanding balance of $ 13.5 million with a 1 % annual interest rate, to be paid upon maturity (“Notes B”). The restructured notes had an original maturity of September 30, 2016 and, thereafter, various interim renewals were approved to allow for the re-negotiation of a longer-term extension. The last of these interim renewals, among other things, extended the maturity date until April 2022, decreased the interest rate applicable to the Notes A to 4.25 % and maintained the Notes B at an interest rate of 1 %. In March and July 2022, the Audit Committee authorized two separate 90-day interim maturity extensions to provide additional time for the Bank to analyze and negotiate the terms and conditions for a longer-term renewal of the credit facilities. In November 2022, BPPR and related parties of the Corporation’s director entered into a three-year extension of the loans, until November 2025, which, among other things: (i) increased the interest rate applicable to Notes A to 5.25 % and maintained the Notes B at an interest rate of 1 % and (ii) established a principal repayment schedule for Notes A, including a $ 0.7 million mandatory prepayment. The three-year extension of the loans was approved by the Audit Committee in accordance with the Related Party Policy. The aggregate outstanding balance on the loans as of December 31, 2022 was approximately $ 29.3 million, of which approximately $ 15.8 million corresponded to Notes A and $ 13.5 million to Notes B. During 2022, the borrower paid approximately $ 1.4 million and $ 0.7 million in principal and interest, respectively. In April 2010, in connection with the acquisition of the Westernbank assets from the FDIC, as receiver, BPPR acquired a term loan to a corporate borrower partially owned by an investment corporation in which the Corporation’s Chairman, at that time the Chief Executive Officer, as well as certain of his family members, are the owners. In addition, the Chairman’s sister and brother-in-law are owners of an entity that holds an ownership interest in the borrower. At the time the loan was acquired by BPPR, it had an unpaid principal balance of $ 40.2 million. In May 2017, this loan was sold by BPPR to Popular, Inc., holding company (“PIHC”). At the time of sale, the loan had an unpaid principal balance of $ 37.9 million. PIHC paid $ 37.9 million to BPPR for the loan, of which $ 6.0 million was recognized by BPPR as a capital contribution representing the difference between the fair value and the book value of the loan at the time of transfer. Immediately upon being acquired by PIHC, the loan’s maturity was extended by 90 days (under the same terms as originally contracted) to provide the PIHC additional time to evaluate a refinancing or long-term extension of the loan. In August 2017, the credit facility was refinanced with a stated maturity in February 2019. During 2017, the facility was subject to the loan payment moratorium offered as part of the hurricane relief efforts. As such, interest payments amounting to approximately $ 0.5 million were deferred and capitalized as part of the loan balance. In February 2019, the Audit Committee approved, under the Related Party Policy, a 36 -month renewal of the loan at an interest rate of 5.75 % and a 30 -year amortization schedule. In December 2021, the Corporation refinanced the then-current $ 36.0 million principal balance of the loan at an interest rate of 4.50 %, a maturity date of December 2026 and a 20 -year amortization schedule. Payments of principal and interest of approximately $ 1.2 million and $ 1.5 million, respectively, were made during 2022. As of December 31, 2022, the outstanding balance of the loan was approximately $ 33.6 million. The borrower is current on its payments. At December 31, 2022, the Corporation’s banking subsidiaries held deposits from related parties amounting to approximately $ 628 million (2020 - $ 700 million). From time to time, the Corporation, in the ordinary course of business, obtains services from related parties that have some association with the Corporation. Management believes the terms of such arrangements are consistent with arrangements entered into with independent third parties. For the year ended December 31, 2022, the Corporation made contributions of approximately $ 4.8 million to Fundación Banco Popular and Popular Bank Foundation, which are not-for-profit corporations dedicated to philanthropic work (2021 - $ 4.5 million). The Corporation also provided human and operational resources to support the activities of the Fundación Banco Popular which in 2022 amounted to approximately $ 1.5 million (2021- $ 1.3 million). Related party transactions with Evertec, as an affiliate 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 year ended December 31, 2022 (December 31, 2021 - $ 2.3 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.. 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 for the years ended December 31, 2022 and 2021, including the effects of the gains recognized related to the Evertec Transactions. Years ended December 31, (In thousands) 2022 2021 2020 Share of Evertec income and Gain from the Evertec Transactions and related accounting adjustments [1] $ 269,539 $ 26,096 $ 16,936 Share of other changes in Evertec's stockholders' equity 3,168 53 865 Share of Evertec's changes in equity recognized in income and Gain from the Evertec Transaction and related accounting adjustments $ 272,707 $ 26,149 $ 17,801 [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. 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 years ended December 31, 2022, 2021 and 2020. Items that represent expenses to the Corporation are presented with parenthesis. Years ended December 31, (In thousands) 2022 [1] 2021 2020 Category Interest expense on deposits $ (267) $ (388) $ (315) Interest expense ATH and credit cards interchange income from services to Evertec 13,955 27,384 22,406 Other service fees Rental income charged to Evertec 3,258 6,593 7,305 Net occupancy Fees on services provided by Evertec (128,681) (245,945) (223,069) Professional fees Other services provided to Evertec 420 740 1,002 Other operating expenses Total $ (111,315) $ (211,616) $ (192,671) [1] Includes activity through June 30, 2022. The Corporation continues to obtain programming, processing, and other technology services from Evertec under the amended and restated Master Service Agreement (“MSA”). For the year ended December 31, 2022 the Corporation incurred expenses of $ 242 million in connection with these services. In addition, the Corporation received $ 6.7 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 December 31, 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 year ended December 31, 2022, the Corporation recorded $ 31.2 million in earnings from its investment in BHD León (December 31, 2021 - $ 27.7 million), which had a carrying amount of $ 199.8 million at December 31, 2022 (December 31, 2021 - $ 180.3 million). The Corporation received $ 16.0 million in dividends distributions during the year ended December 31, 2022 from its investment in BHD León (December 31, 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 year ended December 31, 2022 administrative fees charged to these investment companies amounted to $ 2.5 million (December 31, 2021 - 4.1 million) and waived fees amounted to $ 0.9 million (December 31, 2021 - $ 1.5 million), for a net fee of $ 1.6 million (December 31, 2021 - $ 2.6 million).

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- Definition The entire disclosure for related party transactions. 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 1 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6457730&loc=d3e39549-107864 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI https://asc.fasb.org/topic&trid=2122745 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -SubTopic 10 -Section 50 -Paragraph 6 -URI https://asc.fasb.org/extlink&oid=6457730&loc=d3e39691-107864 + Details
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